The Uses And Types Of Busines Vocabulary Business

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The drama over Europe's sovereign debt might seem good ammunition for American deficit hawks. Not so. As Barack Obama's bipartisan deficit commission held its first meeting on April 27th, the rising cost of government debt across southern Europe was, if anything, being used to draw a favourable contrast between the American and Greek fiscal positions.

Nevertheless, the American fiscal picture has darkened considerably, thanks to the recession. The projected 2010 deficit, of around 11% of GDP, contrasts with one of 1.2% as recently as 2007, while the net public debt has climbed from 36% to 64% of GDP. These figures look good beside those of Greece, where debt may touch 150% of output by the middle of the decade. There is still enough gloom, however, to trigger concern over the potential for rising interest rates and continued fiscal weakness as America's baby-boomers start to retire.

The good news is that the deficit is forecast to fall as the federal stimulus unwinds and growth returns. That alone should cut the gap to about 5% of GDP by mid-decade. The president's budget, released in February, aims to narrow the gap further still, to primary balance (where revenues equal spending less interest costs, which are around 3% of GDP). The overall deficit should narrow to 3.9% by 2015 via a three-year freeze on non-security discretionary spending, which accounts for about 15% of all spending. The last percentage point of deficit to be eliminated was left by the president to the deficit commission. Alan Simpson and Erskine Bowles, its joint chairmen, are being asked, in effect, to trim about $180 billion a year from the federal budget five years down the road.

The task has been sapped of some of its drama by recent budget revelations. Three weeks ago administration officials announced that the government was on track to run a deficit nearly $300 billion smaller than originally forecast for the first six months of the current fiscal year, thanks largely to higher tax receipts than expected.

Officials were careful to note that the performance might not continue for the rest of the year. Still, the news left a clear impression: deficit reduction may be easy. A week later, the Senate Budget Committee passed its 2011 budget resolution-a set of guidelines for the 2011 fiscal year-which achieves a 3% deficit by 2015. Should the full Senate pass the resolution and Congress's appropriators respect it, the commission's primary job will be done.

All well and good. But that still leaves the commission's second task-offering long-term budget recommendations. For it is the long run that looks truly grim. The deficit is forecast to start widening again by the end of the decade, and to deteriorate rapidly thereafter. By 2035 the Congressional Budget Office estimates that annual deficits, on current spending plans, would be close to 15% of GDP (bigger than Greece's now) while net public debt would exceed 180% of GDP (also more than Greece's). The ageing of the population accounts for some of the red ink, but much more stems from rising health costs.

So it is notable that Mr Obama convened the commission by declaring "everything" to be on the table. That includes, it was implied, the recent hard-won health-reform package, which contained frustratingly little in terms of cost control. Unfortunately it is on these rocky shoals that the commission is likely to run aground. The health debate clearly illustrated the vast ideological distance between the parties on the issue; and at least 14 of the commission's 18 members must agree on any proposal before it can be sent to Congress.

Commission members are therefore expected to press for tax reform or new revenue sources that might buy time for compromise. The hard choices will be put off, probably until a crisis forces the government's hand. That is a dangerous game to play. Just ask the Greeks.

Source:, 29 April 2010.

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