Outgoing White House economic adviser Larry Summers warned Monday that Washington must address the ballooning deficit in the federal budget, calling it a potential "tax on our future" that only gets worse the longer it's ignored.
While defending the Obama administration's expensive economic stimulus policies and claiming the recovery must be the government's first priority, Summers urged Congress to pick up where the president's deficit commission left off, and find a way to balance the budget.
"Deficits are a means of postponing and magnifying ultimately necessary tax increases or spending reductions," he said at the Economic Policy Institute, delivering his final thoughts as director of the National Economic Council.
"They are a tax on our future unless used to finance productive investments," Summers said.
Summers' remarks come in the middle of a tense debate on Capitol Hill over a nearly $900 billion package of tax breaks and unemployment aid. The top economic adviser seemed to argue Monday that the administration's policies so far, including the most recent proposal, count as the kind of "productive investments" that make deficit spending palatable.
Though Summers said estate tax breaks included in the package were not something the president wanted, he called the resulting compromise an important economic jolt. Summers even warned last week that a failure to pass such a package could lead to a double-dip recession -- a term for a recession that seizes an economy as it begins to recover from a prior recession.
Though Democrats and Republicans diverge over whether the wealthy should benefit from extensions of the Bush tax cuts, both parties generally agree that middle-class tax cut extensions and other provisions in the package are necessary to keep the economy from taking a negative turn.
But with the 2011 budget deficit projected to exceed the $1 trillion mark for the third year in a row, Summers said "long-term" action must be taken. Summers said a failure to do so could risk a "profound demoralization" with regard to government, leading to a "vicious cycle" of severe funding cuts and government performance problems.
He also warned Washington against watering down provisions of the financial regulatory overhaul passed this year. Summers said the campaign to block the new policies has not faded and has re-surfaced in the rule-writing effort.
Despite the concern about the deficit, Summers predicted that Congress would vote without incident next year to raise the debt ceiling past $14.3 trillion.