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U.S. Budget Deficit to Balloon, CBO Says
Deteriorating economic conditions are a major cause of the darkening fiscal picture, according to the CBO. But other factors also are weighing heavily on the budget this year and next. For example, the $700 billion financial-system bailout is now expected to cost taxpayers at least $350 billion, by CBO estimates, because the investments the Treasury Department has made in banks and other financial institutions are worth considerably less than when the bailout was approved. In addition, Obama proposes to use a portion of the money to buy down troubled mortgages, a program that will provide no return to the taxpayer.
The CBO's estimates assume that the Treasury will win approval to spend another $500 billion on the bailout, at an ultimate cost to taxpayers of $250 billion.
The government takeover of mortgage-finance giants Fannie Mae and Freddie Mac is also proving more costly than expected, the CBO reports. On the bright side, however, the office projects that it will cost taxpayers less to cover deposits at failed banks than previously projected because federal officials recently increased insurance premiums.
Democratic budget leaders are putting the finishing touches on their versions of Obama's spending plan and hope to bring them to a vote in the House and Senate in the next two weeks. Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee, said he has already made "lots of adjustments" that will slice billions from Obama's spending proposals, generating smaller deficits.
"We're requiring more things to be paid for and to have tough spending discipline. It's just got to be done," said Conrad, who expects to unveil an outline of his budget proposal Tuesday.
But Conrad and House Budget Committee Chairman John M. Spratt Jr. (D-S.C.) said they will preserve Obama's priorities. "We will follow President Obama's lead," Spratt said, "and produce a budget that cuts the deficit in half over the next four years but still invests in areas critical to our future such as energy, education and health care."
Orszag said such changes are a common part of the budget process. "No one had any expectation they would take our budget, Xerox it and vote on it," he said. "I am confident that what will come out of the committees will lead to a fiscally sustainable path."