Obama’s Difficult Fiscal Summer

Barack Obama told the last G-20 summit that he will propose tough deficit-reduction measures next year. But his administration has followed the opposite strategy, letting rip with new spending, which he hopes will lead to pressure for higher taxes, possibly even a European-style value-added tax - an agenda that American voters aren't buying.

PALO ALTO – Barack Obama’s administration suffered a string of fiscal setbacks this summer. But has it learned anything in recent months?

First, at the G-20 Summit in Canada, President Obama was soundly rebuffed by Canadian Prime Minister Stephen Harper, Great Britain’s new prime minister, David Cameron, and German Chancellor Angela Merkel, among others, on his demand for additional fiscal stimulus (more government spending). They are instead pursuing fiscal consolidation, following the immense explosion of public deficits and debt in the 2008-09 recession, and have called for cutting deficits in half by 2013 and stabilizing the government debt-to-GDP ratio by 2016. 

Obama said at the summit that he will propose tough deficit-reduction measures next year. But talk is always cheaper than action. Thus far, the Obama administration has followed the opposite strategy, letting rip with new spending, while hoping that concern over deficits and debt will lead to pressure for higher taxes, possibly even a European-style value-added tax.

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