Jan 30, 3:39 AM EST

What red ink? As deficits dip, all sides seek more spending


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WASHINGTON (AP) -- The deficit is dead. Long live the deficit.

As the nation's ledger adjusts to decreasing levels of deficit spending, the voices in Washington calling for austerity are barely audible. Republicans want more defense spending. Democrats want more domestic spending. And President Barack Obama wants both.

For the first time since the 2011 Budget Control Act put in place a series of automatic spending cuts, Obama might be in the best bargaining position to move the debate his way. And that's with Republicans in charge of Congress.

Obama on Thursday called for a 7 percent boost in government spending that would nullify those 2011 so-called sequestration cuts and increase domestic and defense spending by a total of $74 billion in nearly equal amounts.

"Let's make sure that we end this across-the-board sequester that doesn't differentiate between smart government spending and dumb government spending," he told a gathering of Democratic lawmakers in Philadelphia.

That's not to say that Obama's budget, set for release on Monday, stands any better chance than his previous budgets at winning congressional support - i.e., zero. But as a negotiating document, it might not be so easily dismissed.

"President Obama would like there to be more nondefense spending, and will try to use defense spending to drive a wedge in the Republican Party, and build support for busting the sequester levels. He will likely succeed," said Kevin Hassett, an economist at the conservative American Enterprise Institute and an adviser to Mitt Romney's 2012 presidential campaign.

Left out of all these equations is the nation's long-term fiscal picture. Amid the current wish lists for more child care, free community college, and bigger ship and submarine fleets, little is said about an aging population, a growing national debt and the demands on the government created by greater health care access.

That means that while the deficit is now at its lowest since 2007, it will likely be back with a vengeance within the decade.

The Congressional Budget Office this week projected that based on current laws, deficits will eventually rise from $468 billion this year to $1.1 trillion in 2025. The factors behind the increase: baby-boomer retirements, increased federal subsidies for health care, increasing health care costs and rising interest on the federal debt. These are on the mandatory spending side of the ledger, not the discretionary costs that are subject to annual congressional appropriations. Without more revenue or reduced benefits, the deficit can only grow.

"I'm sure we'll have another knock-down, drag-out over discretionary spending," said Robert Bixby, executive director of the budget watchdog Concord Coalition. "Probably there will be some kind of deal between the White House and the Congress, but that deal may also be to ignore the entitlement and tax reform."

Republicans and Democrats have been doing the equivalent of whistling past the graveyard on the long-term deficit ever since Obama and House Speaker John Boehner failed to reach a historic deal four years ago. Since then, the budget cutting has focused on the easier stuff.

Long-term tax revenue has been off the table, as have any cost-saving ideas for Medicare and Social Security.

Still, the deficit dropped thanks to a tax increase on the rich, an improving economy and the domestic and defense spending cuts agreed to in the Budget Control Act of 2011.

Now those cuts have proved too painful to both parties.

Congressional Republicans are divided on how to pay for additional Pentagon spending. Some want cuts in domestic spending, others have even suggested tax revenue - a toxic idea among many conservatives. Obama seems determined to take advantage of the lack of agreement.

"Whatever it takes, within reason, to get this problem fixed is what I'm willing to do," said Sen. Lindsey Graham, R-S.C., adding that he would be willing to consider more tax revenue "just to get the damn thing done."

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Associated Press writers Josh Lederman and Andrew Taylor contributed to this report.

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