Earlier versions of this article said the deficit for this year would be $490 billion. That is the estimated deficit for the next fiscal year. This article has been corrected.
Record $482 Billion '09 Deficit Forecast
Tuesday, July 29, 2008
The federal budget deficit will grow to a record $482 billion in the fiscal year that begins in October, the White House said yesterday, driven by war costs, tax rebates, and a slowing economy that will leave the next president little room to fulfill costly campaign promises.
White House budget director Jim Nussle said unexpectedly slow economic growth, sharp declines in housing prices and an unanticipated increase in inflation will help drive next year's tide of red ink close to half a trillion dollars, up sharply from February's $407 billion estimate.
"We are not happy about the deficit," Nussle conceded.
After three successive years of decline, this year's explosion of red ink is likely to scramble the plans of the next president, regardless of whether Republican John McCain or Democrat Barack Obama prevails. Each candidate has pledged hundreds of billions of dollars in new tax cuts or new spending. And the winner in November will inherit a government deeply in debt, with the cost of
the baby-boom retirement looming large in the near future.
"This is going to make it extraordinarily difficult for whoever's going to become president," said Senate Budget Committee Chairman Kent Conrad (D-N.D.). "I don't care who the president is -- when they come in and meet with their secretary of the Treasury, the Federal Reserve chairman, their top economists, it will be a sobering moment."
In February, President Bush projected a huge deficit increase, to $410 billion, for the fiscal year that ends Sept. 30, anticipating passage of his war funding request and a generous package of tax rebates to stimulate the economy. The White House yesterday adjusted that forecast downward slightly, to $389 billion, still up sharply from the $162 billion deficit recorded last year. The deficit was $248 billion in fiscal 2006 and $318 billion in fiscal 2005.
Bush had expected the impact of the tax rebates and war funding to begin subsiding in 2009, reducing the deficit by $3 billion. Instead, Nussle said, the slowing economy will push the deficit to a level that would easily beat the record $413 billion deficit of fiscal 2004.
If anything, the White House's new deficit forecasts may be low. This year's deficit does not include the costs of the massive housing bill Congress approved last weekend, nor does it reflect the new law reversing scheduled cuts in Medicare reimbursements to doctors.
Next year's record figure includes only $70 billion for the wars in Iraq and Afghanistan, which could cost three times that much, and it is based on economic assumptions that could prove unrealistic. The White House is assuming economic growth next year of 2.2 percent, down sharply from the 3 percent estimate of February but still brighter than the 1.7 percent growth estimate of many private-sector economists. The White House is also assuming rosier numbers for inflation and unemployment rates.
"That's not the real number," former Bush Treasury secretary Paul H. O'Neill said of the $482 billion deficit forecast. "It's upward of $500 billion and counting. It's a mind-boggling number."
Measured against the size of the economy, next year's mark, at 3.3 percent of the gross domestic product, is still eclipsed by the deficits of Bush's first term, as well as the deficits of George H.W. Bush and Ronald Reagan.