Obama budget deficit seen at record 1.845 trillion dlrs

AFP
AFP American Edition

Mar 19, 2009 20:00 EDT

The US budget deficit could hit 1.845 trillion dollars this year under the budget proposed by President Barack Obama, quadrupling the 2008 record shortfall, a new forecast showed Friday.

The Congressional Budget Office, a non-partisan agency of Congress, said its latest budget deficit estimate for fiscal 2009, which ends on September 30, would amount to 13.1 percent of the country's entire economic output.

Since its early January estimate of a 1.2-trillion-dollar gap, the CBO said, the enactment of stimulus legislation such as the 787-billion-dollar stimulus plan and other measures to revive the economy, and other factors had added more than 400 billion dollars to deficit projections for 2009 and 2010.

The new projections were based on a sweeping 3.55-trillion-dollar multi-year budget proposed by President Barack Obama's administration to Congress in February.

Obama has acknowledged the size of his budget's 1.752-billion-dollar deficit in 2009 would require "some hard choices" on spending priorities.

The White House said the new CBO forecasts would not trim the Democratic president's objectives or thwart his plan to halve the shortfall by 2013.

"None of the numbers today changed the president's either objectives or his ability to achieve that deficit reduction," White House spokesman Robert Gibbs said.

Republicans grabbed the ammunition to push back against Obama's massive budget package that teams tax cuts and heavy spending.

"It's worse than even the most pessimistic predictions for this budget," said Senate Republican Leader Mitch McConnell.

The CBO estimate of red ink would dwarf the nation's record 2008 fiscal budget deficit of 459 billion dollars, which amounted to a relatively tiny 3.2 percent of gross domestic product (GDP).

"The shortfall in the nation's output relative to its potential is comparable with what occurred during the recession of 1981 and 1982 and will persist for significantly longer -- making the current recession the most severe since World War II," the CBO said.

The CBO estimated that for the current fiscal year, spending would soar 34 percent from the past year, to 4.004 trillion dollars, and revenues would plunge 15 percent, to 2.159 billion.

The deficit would remain high in the 2010 fiscal year, at 1.379 billion dollars, before falling below the trillion-dollar mark in 2011, to 970 billion dollars.

Deficits then would shrink to about 2.0 percent of GDP by 2012 and remain in that region through 2019, it said.

The CBO warned that its current forecast, particularly for the near term, was subject to an unusual degree of uncertainty.

"The possibility that financial markets might not stabilize represents a major source of downside risk to the forecast," it said.

If current policies remained the same, the deficit would total almost 1.7 trillion dollars, or 11.9 percent of gross domestic product this year and 1.1 trillion, or 7.9 percent of GDP next year, "the largest deficits as a share of GDP since 1945."

The CBO calendar-year projections on key economic indicators were less optimistic than those that underpin the Obama budget.

The CBO forecast GDP will contract at an annual rate of 3.0 percent in calendar year 2009 before rebounding to 2.9 percent growth in 2010 and 4.0 percent growth in 2011.

Obama's budget is based on a much smaller 1.2 percent contraction this year, and growth of 3.2 percent and 4.0 percent in the two subsequent years, respectively.

The CBO see unemployment accelerating from an average 8.8 percent this year to 9.0 percent in 2010, then easing to 7.7 percent in 2010.

That compares with the White House unemployment forecasts of 8.1 percent, 7.9 percent and 7.1 percent, respectively.

White House budget boss Peter Orszag downplayed the forecast discrepancies as a normal part of the budget evaluation process with Congress.

"No one had ever had an expectation that they would just take our budget," he said in a conference call.

Source: AFP American Edition

 

Related Stories