Federal deficit to hit $1.6t, White House says
More than triples record of $459 billion
WASHINGTON - The federal deficit will soar to nearly $1.6 trillion this year, miring the nation in the deepest pool of red ink since the end of World War II, the nonpartisan Congressional Budget Office and the White House projected yesterday.
The gap between spending and tax collections will amount to 11.2 percent of the overall economy, more than tripling last year’s record deficit of $459 billion, the budget office said. The yawning gap is almost entirely the result of the severe economic downturn, which produced the sharpest drop in tax collections since the Great Depression and the biggest increase in spending since the Korean War.
On the bright side, the deficit is now expected to be slightly lower than officials had feared earlier this year, thanks to dramatically reduced spending on the bailout of the nation’s financial institutions that was approved by Congress last October. The Troubled Asset Relief Program cost $133 billion this year, the budget office said - about $200 billion less than expected in March.
Both the White House and the budget office said the recession should end within a few months, and the budget office credited a $787 billion stimulus package President Obama signed in February with hastening the economic rebound. But congressional economists are predicting “a relatively slow and tentative recovery,’’ and Christina Romer, chairwoman of the president’s Council of Economic Advisers, acknowledged that the unemployment rate will probably hit 10 percent later this year and remain there through the first months of 2010.
The continuing pain among workers, combined with the massive budget deficit, might complicate Obama’s ambitious legislative agenda, including a health care overhaul, when Congress returns to Washington in September. In town hall meetings across the nation this month, voters have complained bitterly about rising federal spending, as well as their fear of greater government intrusion in their lives.
Though the deficit figures are a bit better than expected, Republicans leapt upon the ugly numbers yesterday, arguing that a nation so deeply in hock cannot afford a sweeping expansion of health coverage for the uninsured, Obama’s top domestic priority, that could cost $1 trillion over the next decade.
Obama has insisted that he doesn’t want the measure to add to the deficit, but lawmakers have been unable so far to agree on revenues that cover the cost.
“If the House Democrats’ unaffordable $1 trillion health care bill wasn’t dead before, it should be now,’’ said Representative Dave Camp of Michigan, the senior Republican on the House Ways and Means Committee. Added Senate GOP leader Mitch McConnell of Kentucky: “The alarm bells on our nation’s fiscal condition have now become a siren. If anyone had any doubts that this burden on future generations is unsustainable, they’re gone - spending, borrowing, and debt are out of control.’’
White House budget director Peter Orszag defended the president’s health care initiative, saying reform is essential to reining in the skyrocketing costs of Medicare and Medicaid, the government health programs that threaten to drive future deficits even higher.
“I know some will say this report proves we can’t afford health reform. I think that analysis has it backwards,’’ Orszag said. “Given the long-term nature of that problem, we simply can’t afford to wait.’’
Orszag said that the Bush administration deserves much of the blame for the dark budget picture. More than half of the $9 trillion the nation is projected to have to borrow over the next decade is due to Bush’s refusal to pay for new initiatives, such as sweeping tax cuts, the war in Iraq, and a new prescription drug benefit for Medicare recipients, Orszag said.
Obama has called for maintaining some of the Bush policies that have fueled the deficit - he would extend some of the Bush tax cuts beyond their 2010 expiration date, for example. But in light of the new deficit figures, Orszag hinted that Obama may revisit some of those decisions when he submits his next budget in February.
Budget office director Douglas Elmendorf said if Congress doesn’t reduce deficits, interest rates will likely rise, hurting the economy. But if Congress acts too soon, the economic recovery could be thwarted, he said.
