White House defends deficit, wrong time for austerity

Washington Sun Feb 12, 2012 3:40pm GMT

Washington Feb 12 (Reuters) - President Barack Obama's chief of staff, Jacob Lew, defended his boss on Sunday for failing to cut the U.S. budget deficit, arguing that now was the wrong time for austerity measures as he urged Congress to extend a soon-to-expire payroll tax cut.

Republicans have slammed Democrat Obama for laying out a budget plan that they say is designed to help his campaign for re-election in November, rather than controlling the growth of the U.S. deficit and debt.

But Lew, speaking on Sunday television news shows on the eve of Obama's 2013 budget proposal to Congress, said the plan would outline $4 trillion in 10 year deficit reductions, alongside measures to deliver essential suport to near-term growth.

"I think there is pretty broad agreement that the time for austerity is not today," Lew, Obama's budget chief until few weeks ago, told NBC's "Meet the Press".

The White House says that Obama's budget will request over $800 billion in multi-year spending for job creation and infrastructure programs, including tax breaks for companies and individuals worth more than $300 billion in 2012 if passed into law.

Congress is free to ignore the president's proposals and Republicans have said Obama's budget will be dead on arrival.

The budget, which will delivered to Congress on Monday, projects the deficit at $1.33 trillion this fiscal year or 8.5 percent of gross domestic product, declining to $901 billion, or 5.5 percent of GDP, in 2013.

Obama pledged in 2009 to have halved the deficit by next year, earning the ire of Republicans.

"On this issue - the debt - this president has been completely AWOL. Republicans have had to fight tooth and nail for every dime in savings we've secured," Mitch McConnell, the top Republican in the U.S. Senate, said on Thursday.

Lew, however, argued that Obama's deficit promise was made before his administration truly understood the depth of the recession it had inherited from Republican President George W. Bush.

"When we took office, the economy was falling so fast that the first thing we had to do was put a bottom in ... It cost money in terms of lost revenue and slower economic growth. We're on track now," Lew told ABC News.

The White House said the funding gap will shrink to 2.8 percent of GDP by 2018, below the 3 percent/GDP threshold that credit rating agencies and investors see as the goal for stabilising the growth in national debt as a share of the economy.

Lew, who was the president's chief budget adviser until a few weeks ago, said Congress and the administration are working this weekend to see if a compromise can be reached over extending the payroll tax cut for 160 million Americans, which will expire on Feb. 29 unless Congress acts.

"They have two weeks now to do the important business so they don't get in the way of our economic recovery," he told NBC. The White House esimated extending the payroll tax cut for all of 2012 could add a percentage point to growth this year. (Reporting by Jackie Frank and Alister Bull. Editing by Christopher Wilson)