Office projects a sharply higher deficit

WASHINGTON – Just weeks before the government’s fiscal year ends Sept. 30, the nonpartisan Congressional Budget Office on Tuesday forecast a near-record federal budget deficit of $407 billion, markedly higher than White House projections six weeks ago and more than double last year’s figure.

Mammoth deficits feed inflation, make America dependent on foreign lenders, cost taxpayers hundreds of billions of dollars in interest payments on the growing national debt and drain capital savings from more productive investments.

The widening gap between what the government spends and the revenue it brings in is sure to weigh on the next president and impede efforts to spend on new or larger programs or cut taxes.

Yet John McCain and Barack Obama show few signs that they’re ready to take tough steps to curb deficits, according to budget analysts.

“I don’t think either candidate is treating the deficit, or the debt, seriously. And I don’t see any proposals from either one that would make the situation any better,” said Robert Bixby, the executive director of the Concord Coalition, a bipartisan budget-watchdog organization.

Maya MacGuineas, the president of the bipartisan Center for a Responsible Federal Budget, said in a statement that both candidates “are promising hundreds of billions more in spending and tax cuts than they are paying for.”

Republican nominee McCain has promised to balance the budget by 2013, but most analysts consider that goal elusive unless lawmakers make radical changes in Social Security, Medicare and Medicaid funding. McCain has made no such dramatic proposals.

Obama issued a statement Tuesday on the new data, promising he’d “bring real change by cutting taxes for middle-class families and small businesses, paying for all his proposals to reduce the deficit” and working toward fiscal responsibility. He’d let tax cuts for the wealthiest earners expire and impose higher taxes on certain corporations.

However, the Brookings Institution-Urban Institute Tax Policy Center has found that Obama’s tax-reduction plan would increase the national debt by $3.5 trillion by 2018. McCain wants to leave existing tax cuts in place rather than let them expire, which the center said would add $5 trillion to the debt.

The Congressional Budget Office also offered a dismal forecast Tuesday, projecting a record deficit of $438 billion in the coming year due to the slowing economy, which would reduce tax receipts to the Treasury.

That fiscal 2009 deficit could rise an additional $83 billion if Congress, as expected, adjusts the alternative minimum tax. The deficit projection also doesn’t include the potential costs to taxpayers from last weekend’s seizure of mortgage-finance giants Fannie Mae and Freddie Mac.

The CBO’s latest estimate for fiscal 2008 is $18 billion higher than the Bush administration’s projection six weeks ago. The record deficit was $413 billion in fiscal 2004. Fiscal 2007’s deficit was $161 billion.