Deficits start to matter to voters again

Dick Morris and Eileen McGann:

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Still in shock over the financial collapse, voters tolerated the massive government stimulus package in January. But now they're starting to turn on the deficit-makers.

In the latest Gallup Poll, Obama's favorability remains high (67 percent), as does his job-approval rating (61 percent). But only 55 percent approve of his handling of the economy, just 45 percent approve of his handling of federal spending and only 46 percent approve of his treatment of the budget deficit.

Meanwhile, the Rasmussen poll finds that the public now trusts Republicans over Democrats in managing the economy (for the first time in two years) by 42 percent to 36 percent.

There lies the president's vulnerability. As the consensus among economists and journalists grows that the deficit is pushing up interest rates and weakening the dollar, Obama's weakest link will come under strain. If, say, the falling dollar pushes up gasoline prices and rising interest rates kill off any revival in the construction industry, the deficit will cause a perfect economic storm for the president.

The United States has to borrow a net $3 trillion to $4 trillion over the next two years -- far more than the $1 trillion a year average of the last three years. Obama may well face a tough choice: Print more money (monetizing the debt), triggering a run on the dollar -- or let interest rates skyrocket, killing off the recovery.

Alternately, he could raise taxes to try to fund his programs (particularly his health-care proposals). But even tax hikes confined to the upper brackets will undermine his popularity -- and slow the economy.

Plus, voters will fear that the added government spending will just grow the deficit further. They won't believe Obama's claims that he can save by spending, worrying instead that he's just on another big spending spree.

Indeed, deficit fears -- rather than concerns about whether the program will work, or even opposition to the needed tax hikes -- may prove to be the telling argument against Obama's health-care plans.

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The only government medical program that has come in under budget is the medicare drug benefit program passed by the Republicans. It is running at about half the projected cost. Medicare itself is running well passed original projections of cost and is threatening to become astronomical as the baby boomers start to use it.