In February, President Obama unveiled his $3.7 trillion budget for fiscal year 2012. The enormity of this amount reminds me of the numbers we invented as children—a million billion gazillion. How long will it be before our national budget hits a gazillion? In the real world, forecasted federal revenue for next year lags behind, at only $2.6 trillion, so the federal government is still planning to spend considerably more than it earns. Yet this budget has been characterized by some as “encouraging,” because it is projected to trim $1.1 trillion from our country's deficit over the next 10 years. But does it go far enough? It seems like we're caught between the proverbial rock and a hard place. If we cut too much, too soon, we risk harming a fragile economic recovery; if we don't cut enough, we jeopardize the economic well-being of future generations.

Uncertainty is inherent in the nature of budgets, and differences in the bottom line will depend upon how closely the outcome follows the underlying economic assumptions. For example, President Obama's budget is based on an assumption of robust economic growth next year—an assumption that is measurably more optimistic than the Congressional Budget Office's forecast. Consequently, that assumption figures significantly into the budget's bottom line, and if it is wrong, projected revenue will be less, and the deficit will be greater than anticipated.

With What Shall We Fix It?

Most financial experts agree that we can't simply grow our way out, spend our way out, or cut our way out of our current fiscal woes. The solution will have to include a combination of raising revenues, cutting expenditures, and making wise investments for future growth and sustainability.

Raising revenues

Additional revenues must be part of the solution. Some of the provisions in President Obama's budget proposal include: increasing revenue by allowing the 2001 and 2003 tax cuts to expire for individuals who earn more than $200,000 (single) or $250,000 (married); a cap on itemized deductions for high-income individuals that will help to fund relief from the alternative minimum tax (AMT) for middle-income taxpayers (for whom the tax was never intended); a financial crisis responsibility fee to be levied on financial institutions; and a call for corporate tax reform that would eliminate many existing loopholes.

Cutting expenditures

The President's 2012 budget proposes cuts in a variety of areas—some that were long overdue and others with which we might not agree. But the 800-pound gorilla in the room, entitlement programs, went unaddressed, despite the recommendations of the bipartisan National Commission on Fiscal Responsibility and Reform (www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf). If we're serious about getting our nation's fiscal health back on track, it is essential that we tackle the structural deficits associated with these programs as well as the related increasing health costs of an aging population. This would entail a major restructuring of Social Security, Medicare, and Medicaid. It's not likely to be politically popular, and it will require using a scalpel rather than an ax—a skill with which our legislators don't have a great deal of experience.

Making investments

The President's budget addresses investment in infrastructure, education, and alternative energy solutions. These investments in the economy can help to produce returns in job creation and economic growth.