Record budget deficit forecast
$1.58 trillion deficit could threaten Obama agenda
WASHINGTON – The White House and the nonpartisan Congressional Budget Office said Tuesday that this year’s federal budget deficit will top $1.58 trillion, less than projected this spring but still historically high – high enough to pose serious problems for President Barack Obama’s agenda.
“Overall,” said budget director Peter Orszag, the new forecast “underscores the dire fiscal situation that we inherited and the need for serious steps to put our nation back on a sustainable fiscal path.”
Republicans quickly pounced at the latest numbers, which would shatter the previous deficit record, set last year, of $455 billion.
“The alarm bells on our nation’s fiscal condition have now become a siren,” said Senate Minority Leader Mitch McConnell of Kentucky.
Democrats insisted that the new numbers, contained in separately issued reports, were hardly surprising – a view largely shared by independent analysts. Obama loyalists insisted the forecast would not derail the president’s most important 2009 initiative, his plan to overhaul the nation’s health care system.
“The single most important thing we can do to improve the long-term fiscal health of our nation is slow the growth rate in health care costs,” said House Speaker Nancy Pelosi, D-Calif.
Obama is also seeking other potentially costly programs, notably curbs on global warming and perhaps extending some of this year’s economic stimulus programs.
Many prominent economists think there is no alternative to unusually high deficits, because the financial crisis that exploded last September has deeply damaged credit markets and lending, leaving the private sector weakened and in no state to lead a recovery.
“It’s scary, but all that it reflects is a weaker forecast. It doesn’t change anything about what has to be done,” said James K. Galbraith, a University of Texas economist who thinks that government spending is necessary regardless of how large the deficit grows.
“There is no way around this. If the private economy starts to recover, and you start to get private (sector) contribution … then the budget deficit will fall and anything you are doing can be scaled back,” he said.
The new deficit forecasts are below the White House’s $1.84 trillion May number for the fiscal year ending Oct. 1, as administration estimates of funding needed for financial industry rescues declined.
However, the new figures still mean the deficit would total 11.2 percent of gross domestic product, a post-World War II record. And the White House’s “mid-session review” of the budget predicted that during the next 10 years, deficits would total about $9.05 trillion, up from the $7.1 trillion it forecast earlier this year.
The CBO stuck to the $7.1 trillion figure, assuming that Bush-era tax cuts set to expire after next year will expire. The White House assumes that some of the tax cuts will remain, since Obama has said he doesn’t want to raise taxes on the middle class, though he’s indicated he’d raise taxes on the wealthy.
The CBO had some good news, predicting that the economy would grow at an annual rate of 1.6 percent in the second half of this year, after sharp declines in the first half.
But it anticipated at least several more months of employment losses. The CBO saw unemployment, 9.4 percent last month, averaging 10.2 percent next year before falling to 9.1 percent in 2011.