Federal Budget Gap Tops $1 Trillion Through June

July 14, 2010

Yahoo Finance

By: Martin Crutsinger

The federal deficit has topped $1 trillion with three months still to go in the budget year, showing the lasting impact of the recession on the government’s finances.

In its monthly budget report, the Treasury Department said Tuesday that through the first nine months of this budget year, the deficit totals $1 trillion. That’s down 7.6 percent from the $1.09 trillion deficit run up during the same period a year ago.

Worries about the size of the deficit have created political problems for the Obama administration. Congressional Republicans and moderate Democrats have blocked more spending on job creation and other efforts. Republicans also have held up legislation to extend unemployment benefits for the long-term jobless because of its effect on the deficit.

Another failed effort would have provided cash-starved states with money to help avoid layoff of public employees and finance the Medicaid program for the poor and disabled.

President Barack Obama also encountered resistance to further stimulus spending at a meeting of the Group of 20 major industrial nations last month in Toronto.

Obama expressed concerns about the risks to a fragile global recovery from withdrawing spending too soon. But the G-20 adopted targets to cut deficits in half as a percentage of their economies over three years.

The deficit in the federal budget in June totaled $68.4 billion, the second highest June deficit on record, but down from the all-time high of $94.3 billion in June 2009, a month when the government was spending heavily to stabilize the financial system and jump-start economic growth.

June is normally a surplus month as the government collects tax payments from corporations and individuals who make quarterly payments. Only seven years in the past 56 have seen deficits in June.

Many private economists are forecasting that the deficit for the entire budget year, which ends on Sept. 30, will come in around $1.3 trillion. That would be the second highest deficit on record, but it would be down slightly from last year’s all-time high of $1.4 trillion.

The Obama administration is forecasting that the deficit for the 2011 budget year, which begins Oct. 1, will remain above $1 trillion for a third straight year, projecting an imbalance of $1.27 trillion. And the administration predicts the imbalances over the next decade will total $8.5 trillion.

The deficits have been driven higher by the lingering effects of the worst recession since the 1930s. About one-third of the higher deficits in this period are a result of a drop in government tax revenues.

The other two-thirds of the deficit increases reflect higher government spending to stabilize the financial system with the $700 billion bailout program and the $787 billion stimulus program that Congress passed in February 2009. The increased spending also reflected added demands for such programs as unemployment benefits and food stamps.

The tide of red ink has sparked a political backlash with surveys showing rising unhappiness among voters with the ballooning deficits.

Through the first nine months of the current budget year, government revenues have totaled $1.6 trillion, up 0.5 percent from the same period a year ago.

Government spending totals $2.6 trillion, down 2.8 percent from the same nine months a year ago. That decline primarily reflects lower spending on the financial bailout effort as banks are now repaying the billions of dollars they received to bolster their capital reserves at the peak of the financial crisis.

Obama has appointed a national debt commission to report after the November midterm elections on ways that the federal deficits can be brought under control.

The heads of the panel told the National Governors Association on Sunday that everything needs to be considered including curtailing popular tax breaks, such as the home mortgage deduction.

“The debt is like a cancer,” Democrat Erskine Bowles told the governors. “It is going to destroy the country from within.”

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Dem Govs Warn, Obama vs. AZ Is ‘Toxic’

July 12, 2010

The New York Times

By: Abby Goodnough

In a private meeting with White House officials this weekend, Democratic governors voiced deep anxiety about the Obama administration’s suit against Arizona’s new immigration law, worrying that it could cost a vulnerable Democratic Party in the fall elections.

While the weak economy dominated the official agenda at the summer meeting here of the National Governors Association, concern over immigration policy pervaded the closed-door session between Democratic governors and White House officials and simmered throughout the three-day event.

At the Democrats’ meeting on Saturday, some governors bemoaned the timing of the Justice Department lawsuit, according to two governors who spoke anonymously because the discussion was private.

“Universally the governors are saying, ‘We’ve got to talk about jobs,’ ” Gov. Phil Bredesen of Tennessee, a Democrat, said in an interview. “And all of a sudden we have immigration going on.”

He added, “It is such a toxic subject, such an important time for Democrats.”

The administration seemed to be taking a carrot-and-stick approach on Sunday. Homeland Security Secretary Janet Napolitano, in town to give the governors a classified national security briefing, met one-on-one with Jan Brewer, the Republican who succeeded her as governor of Arizona and ardently supports the immigration law.

About the same time as that meeting, Attorney General Eric H. Holder Jr. said on a taped Sunday talk show that the Justice Department could bring yet another lawsuit against Arizona if there is evidence that the immigration law leads to racial profiling.

Ms. Brewer said she and Ms. Napolitano did not discuss the current lawsuit. Instead, in a conversation she described as cordial, they discussed Arizona’s request for more National Guard troops along the border with Mexico, as well as other resources.

The Democrats’ meeting provided a window on tensions between the White House and states over the suit, which the Justice Department filed last week in federal court in Phoenix. Nineteen Democratic governors are either leaving office or seeking re-election this year, and Republicans see those seats as crucial to swaying the 2012 presidential race.

The Arizona law — which Ms. Brewer signed in April and which, barring an injunction, takes effect July 29 — makes it a state crime to be an illegal immigrant there. It also requires police officers to determine the immigration status of people they stop for other offenses if there is a “reasonable suspicion” that they might be illegal immigrants.

The lawsuit contends that controlling immigration is a federal responsibility, but polls suggest that a majority of Americans support the Arizona law, or at least the concept of a state having a strong role in immigration enforcement.

Republican governors at the Boston meeting were also critical of the lawsuit, saying it infringed on states’ rights and rallying around Ms. Brewer, whose presence spurred a raucous protest around the downtown hotel where the governors gathered.

“I’d be willing to bet a lot of money that almost every state in America next January is going to see a bill similar to Arizona’s,” said Gov. Dave Heineman of Nebraska, a Republican seeking re-election.

But the unease of Democratic governors, seven of whom are seeking re-election this year, was more striking.

“I might have chosen both a different tack and a different time,” said Gov. Bill Ritter Jr. of Colorado, a Democrat who was facing a tough fight for re-election and pulled out of the race earlier this year. “This is an issue that divides us politically, and I’m hopeful that their strategy doesn’t do that in a way that makes it more difficult for candidates to get elected, particularly in the West.”

The White House would not directly respond to reports of complaints from some Democratic governors.

But David Axelrod, the president’s senior adviser, said on Sunday on CNN’s “State of the Union” that the president remained committed to passing an immigration overhaul, and that addressing the issue did not mean he was ignoring the economy.

“That doesn’t mean we can’t have a good, healthy debate about the economy and other issues,” Mr. Axelrod said.

Mr. Obama addressed the economy last week during stops in Kansas City and Las Vegas, and has been calling on Congress to offer additional tax relief to small businesses.

And the heads of Mr. Obama’s national debt commission — Alan K. Simpson and Erskine B. Bowles — were on hand here on Sunday to press the economic issue.

The nation’s total federal debt next year is expected to exceed $14 trillion, and Mr. Simpson, a former Republican senator from Wyoming, and Mr. Bowles, a Democrat and the White House chief of staff under President Bill Clinton, offered a gloomy assessment if spending is not brought under control even more.

“This debt is like a cancer,” Mr. Bowles said. “It is truly going to destroy the country from within.”

Still, the issue of immigration commanded as much attention as anything here this weekend.

Ms. Brewer, who was trailed by television cameras all weekend, called the lawsuit “outrageous” and said the state was receiving donations from around the country to help fight it.

“I think Arizona will win,” she said, “and we will take a position for all of America.”

Immigration was not the only topic at the Saturday meeting between Democratic governors and two White House officials — Patrick Gaspard, Mr. Obama’s political director, and Cecilia Munoz, director of intergovernmental affairs. But several governors, including Christine Gregoire of Washington, said it was a particularly heated issue.

Ms. Gregoire, who does not face an election this year, said the White House was doing a poor job of showing the American public that it was working on the problem of illegal immigration.

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