Tough Challenge Facing Obama Administration in Last Days of Budget Deliberations

Today’s New York Times article on the difficulty President Obama faces in keeping his promise about deficit reduction and tax cuts, Promise to Trim Deficit Is Growing Harder to Keep, is a precursor to all the stories that will be written before the President’s State of the Union address and the release of his FY 2011 budget on the first Monday in February. 

The article highlights the fundamental question that faces the administration as it prepares its first full budget. How will the administration balance deficit reduction with a campaign pledge to not raise taxes on Americans making less than $250,000 a year and the pressure to do more to stimulate the economy?
Past presidents have faced the same problem when faced with deficit reduction and promises about taxes and/or economic concerns. In 1990, President Bush gave up his commitment to “no new taxes” when he, along with Congress, made a larger budget deal to combat growing deficits. And in 1993, President Clinton chose to address deficits first, rather than the middle-class economic concerns that denominated his campaign.
The economic lessons of the 1990s should give the Obama administration some hope that they can both pursue deficit reduction and improve the economy. Targeted and thoughtful deficit and debt reduction can give the markets faith in the American economy and can stimulate economic growth.