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Deficits figured at $9.3 trillion
CBO projections higher than the administration's
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Published: March 21, 2009
WASHINGTON
President Obama's budget would produce $9.3 trillion in deficits over the next 10 years, more than four times the deficits of Republican George W. Bush's presidency, congressional auditors said yesterday.
The new figures from the Congressional Budget Office offered a far more dire outlook for Obama's budget than the new administration predicted just last month -- a deficit $2.3 trillion worse. It is a prospect that even the president's own budget director called unsustainable.
In his White House run, Obama was sharply critical of the economic policies of his predecessor, but the eye-popping deficit numbers threaten to swamp his agenda of overhauling health care, exploring new energy sources and enacting a large number of domestic programs.
The deficit figures, if they prove to be accurate, inevitably raise the prospect that Obama and his Democratic allies controlling Congress would have to consider raising taxes after the recession ends or else cut back his agenda.
By the CBO's calculation, Obama's budget would generate deficits averaging almost $1 trillion a year from 2010 to 2019.
Worst of all, the CBO says that the deficit under Obama's policies would never go below 4 percent of the size of the economy, figures that economists agree are unsustainable. By the end of the 10 years, the deficit would exceed 5 percent of gross domestic product, a dangerously high level.
The White House budget chief, Peter Orszag, said that the CBO's long-range economic projections are more pessimistic than those of the White House, some private economists and the Federal Reserve, and he remained confident that Obama's budget, if enacted, would produce smaller deficits.
Even so, Orszag acknowledged that if the CBO projections prove accurate, Obama's budget would produce deficits that could not be sustained.
"Deficits in the, let's say, 5 percent of GDP range would lead to rising debt-to-GDP ratios that would ultimately not be sustainable," Orszag told reporters.
Deficits so big put upward pressure on interest rates as the government offers more attractive interest rates to attract borrowers.
"I think deficits of 5 percent (of GDP) are unsupportable," said economist Mark Zandi, the chief economist at Moody's Economy.com. "It will lead to higher interest rates to the point where it will force policymakers to make changes."
Republicans immediately joined in.
"This report should serve as the wake-up call this administration needs," said the House minority leader, Rep. John Boehner, R-Ohio. "We simply cannot continue to mortgage our children and grandchildren's future to pay for bigger and more costly government."
But Obama said yesterday that his agenda is still on track.
"What we will not cut are investments that will lead to real growth and prosperity over the long term," he said. "That's why our budget makes a historic commitment to comprehensive health-care reform. That's why it enhances America's competitiveness by reducing our dependence on foreign oil and building a clean-energy economy."
Obama's $3.6 trillion budget for the 2010 fiscal year beginning Oct. 1 contains programs to overhaul the U.S. health-care system and initiate new "cap-and-trade" rules to combat warming.
Both initiatives involve raising federal revenue sharply higher, but those dollars would not be used to defray the deficit and would instead help pay for Obama's health plan and implement his $400 tax credit for most workers and $800 for couples.
Obama's budget promises to cut the deficit to $533 billion in five years. The CBO says that the deficit for that year will total $672 billion.
Most disturbing to such Obama allies as Sen. Kent Conrad, D-N.D., the chairman of the Senate Budget Committee, are the longer-term projections, which climb above $1 trillion again by the end of the next 10 years and approach 6 percent of GDP by 2019.
Among about 10 major changes to Obama's budget, Conrad wants to curb Obama's 9 percent increase for nondefense appropriations to show short-term progress and says that the long-term deficit and debt crisis will have to be dealt with through a special bipartisan commission.
"The budget that I'll submit will cut the deficit by more than two-thirds over these first five years," Conrad said. "These imbalances are just absolutely unsustainable."
The worsening economy is responsible for the ever-deepening fiscal mess. As an illustration, the CBO says that the deficit for the current budget year, which began Oct. 1, will top $1.8 trillion, $93 billion more than foreseen by the White House. That would equal 13 percent of GDP, a level not seen since World War II.
The 2009 deficit, fueled by the $700 billion Wall Street bailout and falling tax revenue because of the recession, is four times the previous $459 billion record set just last year.
The CBO's estimate for 2010 is worse as well, with a deficit of almost $1.4 trillion expected under Obama administration policies, about $200 billion more than predicted by Obama.
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