Cutting the National Debt in half...

[kork13]

President Barack Obama pledged Monday to cut the nation's $1.3 trillion deficit in half by the end of his first term.
.....
Obama intends to cut the federal deficit in half primarily by spending less on the war in Iraq, raising taxes on those who make more than $250,000 a year and streamlining government, an administration official told CNN Saturday. (story)

I've seen this in the news for the last day or three, and I'm a little confused on the point I bolded... Am I mistaken, or will this action not decrease the deficit, but simply slow down its growth? My understanding is that our operations in Iraq have been almost exclusively funded by deficit spending (spending money the Gov't doesn't actually have). So if this is the case, how will lower Iraq spending decrease the deficit? It seems to me like a person who charges 2x their income to credit cards, and thinks that spending only 1.5x their income ("net savings: .5x income") will get them out of debt. ...ummm, wait a second...

Call me a pessimist, but I doubt Mr. Obama's grand plans for reducing the debt by $800B in 4 years are going to work out as imagined... You need to have a federal surplus in order to whittle down that national debt.

(please correct me if I'm wrong... I'm no economist)

[disneysteve]

I'm no economist either, but the thought that comes to mind is this one. I'm not sure if it applies here or not.

Let's say you have a credit card. You are carrying a balance and making monthly payments but you are continuing to add new charges to the account. Even though you are making payments, the debt continues to grow. If you curb the spending, though, and continue to make the payments, the debt starts to decrease.

Perhaps that's the case with the federal deficit. Even though debt payments are being made, they keep adding to the debt, so the total just keeps growing. If they can stop adding to it, the balance can actually start getting smaller.

[simpletron]

if you scale the government down to a person making 100K/year. that person would be spending 150K/year, so they are taking on additional 50K in debt every year. this is the deficit and obama plans to cut that half by some combination of increase income(more taxes) or decrease spending(stoping iraq war). in this example, the national debt would be almost 500K and would still grow the entire time, just slower.

[tripods68]

This is what happen after the crash of 1929. Roosevelt raised taxes and tariff which put us in the deepening depression in the 1930s.

Cutting the deficit would only put us in the deeper and longer depression. He should be concentrating in helping the economy; like lowering taxes.

[jIM_Ohio]

The tax increase is the factor not being discussed enough in this thread. How much that influences the equation I will leave to more politically savvy people.

Clinton did a good job of lowering the deficit and I will support any president which follows similar economic policies, even though I did not vote for Clinton and will never vote for Obama.

[noppenbd]

Originally Posted by kork13

I've seen this in the news for the last day or three, and I'm a little confused on the point I bolded... Am I mistaken, or will this action not decrease the deficit, but simply slow down its growth? My understanding is that our operations in Iraq have been almost exclusively funded by deficit spending (spending money the Gov't doesn't actually have). So if this is the case, how will lower Iraq spending decrease the deficit? It seems to me like a person who charges 2x their income to credit cards, and thinks that spending only 1.5x their income ("net savings: .5x income") will get them out of debt. ...ummm, wait a second...

Call me a pessimist, but I doubt Mr. Obama's grand plans for reducing the debt by $800B in 4 years are going to work out as imagined... You need to have a federal surplus in order to whittle down that national debt.

(please correct me if I'm wrong... I'm no economist)

The confusion is between deficit and debt. The budget deficit is the yearly amount that we spend over what we take in. The debt is what we owe. Deficit can go to zero and we will still owe. So cutting deficit in half is great, but we are still spending more than we take in.

One thing that makes this easier for Obama to do, is the Iraq wars were considered "off-budget" by the Bush administration. Obama is adding them back into the budget, and then cutting the Iraq funding, which lets him quote a bigger deficit cut percentage. Not that I disagree (I think all expenditures should be in the budget), but statistics do lie.

[tripods68]

Originally Posted by noppenbd

One thing that makes this easier for Obama to do, is the Iraq wars were considered "off-budget" by the Bush administration. Obama is adding them back into the budget, and then cutting the Iraq funding, which lets him quote a bigger deficit cut percentage. Not that I disagree (I think all expenditures should be in the budget), but statistics do lie.

We know the tax receipts will be lot smaller in the next coming years because of recession/depression. Add that interest cost that will be adding in paying off the stimulus package on yearly basis aside from the Iraq war. Obama's plan to cut the deficit by halves in 4 years is totally misguided i think. His better off concentrating in lowering taxes and businesses to jump start the economy.

[sweeps]

Budget tricks aside... Funding the war in Iraq is doing very little to keep our economy afloat. I guess it keeps military equipment manufacturers in business but other than that, it's a big waste of money (not to mention a big waste of national morale). We'd be better off directing that to domestic expenditures, or better yet cutting it out of the government budget altogether.

[EEinNJ]

Though I support Obama, he's making it sound like they are going to be fiscally responsible and spend less. Yet at the same time they are spending more than ever in history! Obviously this does not add up, but their economics clearly does not correlate to personal finance!