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Deficit Projected To Soar With New Programs
Both the White House and the CBO said the recession should end in a few months, and the CBO credited the $787 billion stimulus package Obama signed in February with hastening the rebound. But congressional economists are predicting "a relatively slow and tentative recovery." Christina Romer, chairman of the president's Council of Economic Advisers, said the unemployment rate is likely to hit 10 percent later this year and remain there through the first part of 2010.
As a result, government spending on social programs will continue to soar while tax collections lag behind previous expectations. Deficits are likely to remain elevated even after the economy recovers, averaging more than $800 billion a year through 2019, when the White House forecasts that the annual gap between spending and revenue will be $917 billion.
Deficits of that magnitude would require dramatically more government borrowing from China and other creditors, driving the accumulated national debt to nearly $23 trillion in 2019 -- or 76.5 percent of yearly gross domestic product, the highest proportion since 1950, the White House said.
Chinese officials have expressed concern about the security of their investments, and some economists fear that the appetite for U.S. Treasurys could dry up as the nation's budget outlook deteriorates and its demand for credit grows. As a result, the government could face ever higher interest rates, further worsening the budget picture and threatening the integrity of the dollar.
Timing of the News
Given the more pessimistic economic outlook, the CBO also predicted larger budget deficits in coming years, increasing its 10-year forecast by $2.7 trillion. Because the CBO report analyzes the effects of current law -- and does not factor in Obama's budget proposals -- it cannot be directly compared with White House figures. But independent budget analysts said a fresh CBO analysis of Obama's policies would probably look even worse than the numbers Orszag released Tuesday.
The simultaneous release of the two budget updates came in a flurry of other economic news, including the president's announcement that he would reappoint Ben S. Bernanke as chairman of the Federal Reserve. Last week, officials also released some of the banner numbers from the White House deficit projections, fueling speculation that the administration was hoping to distract attention from the increasingly alarming fiscal picture.
"It's ironic that an administration that promised openness and transparency is playing a desperate and cynical game to hide these jaw-dropping deficit numbers from the American people," said Antonia Ferrier, a spokeswoman for House Majority Leader John A. Boehner (R-Ohio). "The icing on the cake was the decision to renominate Ben Bernanke simultaneously as well."
But Kenneth Baer, a spokesman for the White House budget office, said the timing was purely coincidental. He said that "it happened to be that this date was the best date" to release the new deficit numbers.