Monday, July 28, 2008

Record deficit expected in 2009
By Richard Wolf, USA TODAY

WASHINGTON — The White House has increased its estimate for next year's deficit to nearly $490 billion, a record figure that will saddle the next president with deepening budget problems in his first year in office, a report due out Monday shows.

The projected deficit for the fiscal year that begins Oct. 1 is being driven higher by the continuing economic slowdown and larger-than-anticipated costs of the two-year, $168 billion fiscal stimulus package passed by Congress, said two senior administration officials with direct knowledge of the report. In February, President Bush predicted the 2009 deficit would be $407 billion.

The budget update shows this year's deficit headed under $400 billion, at least $10 billion less than projected, according to the two officials. That's partly because tax revenue held up reasonably well despite the weaker economy.

The rising deficit for 2009 marks a sharp turnaround for Bush's fiscal legacy. He inherited a $128 billion surplus when he came into office in 2001. It soon turned to red ink because of a recession, the Sept. 11 attacks and the war on terrorism.

Curbing the deficit will fall to Bush's successor and the next Congress following a time when taxes were cut and major spending initiatives were undertaken, including the wars in Iraq and Afghanistan, transportation projects, farm subsidies, Medicare prescription drug coverage and a recently passed expansion of veterans' education benefits.

The actual 2009 deficit could climb still higher because the new projection does not reflect full funding for the wars. In addition, a worsening economy could add to the red ink by reducing tax revenue and increasing safety-net payments, such as jobless benefits and food stamps.
Both presidential candidates have proposed tax cuts that could further swell the deficit. The non-partisan Tax Policy Center estimates that Republican John McCain's cuts would cost $4.2 trillion and Democrat Barack Obama's $2.8 trillion over 10 years. Neither candidate has specified major spending cuts he would make to reduce the deficit.

"The picture's looking pretty dark out there," said Sen. Judd Gregg, R-N.H., top Republican on the Senate Budget Committee. He credited Bush's tax cuts with creating six years of economic growth but "on the spending side, their record is not good."

White House budget director Jim Nussle said that despite the surplus Bush started with, he faced a deficit in defense, intelligence and homeland security that had to be bolstered after 9/11.
"This is not just a mathematical exercise," he said in an interview with USA TODAY. Nussle said an economic recovery and a renewed effort by Congress to control spending could rein in the deficit.

Bush proposed in recent years to slow the growth of spending in programs such as Social Security, Medicare and Medicaid. Those efforts were ignored by Congress — most recently last week, when the House voted to sidestep a provision of the 2003 Medicare prescription drug law that would have required lower Medicare spending.

The biggest budget deficit recorded to date was $413 billion in 2004. In today's dollars, that would be about $478 billion. As a share of the economy, the 2009 deficit would be 3% to 4%, below the post-World War II record of 6% set in 1983.

and from

First, this is the Unified Budget deficit. By these projections, the General Fund deficit (the President's responsibility) will be around $600 billion this year, and $700 billion next year. Second, these projections are probably optimistic.

The costs of bailing out F&F are not included in these projections.