Can Obama Handle the Deficit?

Governments with deficits suffer weakening currencies, higher inflation, and increased tax spending to pay for the deficit’s interest. Deficits are BAD, and right now, the United States is falling into debt faster than at any time in history since World War II (in comparison to GDP).

The government will spend $3.75 trillion this year, but will only collect $2.2 trillion in taxes. That leaves a deficit of $1.55 trillion.

I hope Barack Obama has a plan. But just in case, here’s a six-step strategy that would close the deficit and give the United States a surplus in less than four years:

1. Of this $1.55 trillion deficit, about $500 billion stems from lower tax revenue due to a bad economy. $250 billion more comes from increased spending on welfare programs for the unemployed. Then, an additional $150 billion comes from temporary spending under the stimulus package. When the economy turns around, the Congressional Budget Office shows the deficit will be slashed from $1,550 billion to $650 billion.

2. Next, thanks to Obama’s spending freeze on all non-military discretionary funding—and his removal of tax cuts on oil companies and the super-rich—the deficit will shrink by an additional $100 billion, decreasing the $650 billion deficit to $550 billion.

3. The wars in Iraq and Afghanistan cost $150 billion annually, so if Obama ends those wars (which he has promised to do), the deficit will fall from $550 billion to $400 billion.

4. Medicare and Medicaid are wasteful systems, and the Obama administration has vowed to fix this. Reform in Medicare and Medicaid would save $100 billion every year, bringing the deficit from $400 billion to $300 billion.

5. Next, Obama has promised Social Security reform, which would make rich people pay the same flat 6% rate on the pay roll tax as everyone else, adding $200 billion more in revenue. This would save the Social Security System and bring the federal government deficit from $300 billion to $100 billion per year.

6. The final $100 billion can be finished off in several ways: ending the Obama tax cuts, a freeze in military spending, or more growth from a powerful green economy.

As improbable as it may seem, Obama and the Democrats have the incredible opportunity to turn their historical deficits for 2009 and 2010 into surpluses in as soon as 2013 and 2014.