washingtonpost.com
Deficit Projected To Soar With New Programs
10-Year Estimate of $9 Trillion Fuels Critics of President's Agenda

By Lori Montgomery
Washington Post Staff Writer
Wednesday, August 26, 2009

The nation would be forced to borrow more than $9 trillion to support President Obama's initiatives and other federal programs over the next decade, the White House said Tuesday, a sharp increase in projected deficits that provided fresh ammunition to critics of the president's sweeping proposal to expand health coverage to the uninsured.

In their traditional summertime budget review, administration officials acknowledged that they relied on overly optimistic assumptions about the economy when they forecast in March that Obama's budget plans would generate deficits of $7.1 trillion over the next 10 years. After factoring in the severity of the recession and the prospect of a more sluggish recovery, the White House concluded that the budget outlook is significantly worse.

White House budget director Peter Orszag played down the grim forecast as unsurprising, saying the update merely brings White House projections in line with those of outside experts. He noted that this year's deficit is now expected to approach $1.6 trillion -- the highest on record and the biggest as a percentage of the economy since the end of World War II, but slightly smaller than officials had feared.

Still, with town hall meetings across the country erupting with bitter complaints about rising federal spending and the fear of greater government intrusion into people's lives, the new projections are likely to complicate Obama's ambitious legislative agenda when Congress returns in September.

Republicans seized on the forecast, arguing that a nation so deeply mired in red ink can ill afford an overhaul of the health-care system projected to cost as much as $1 trillion over the next decade. Although Democrats have vowed to pay for health reform with spending cuts and tax increases, the packages under discussion would drive up future deficits by $240 billion or more.

"Americans are deeply shaken -- and increasingly angered -- by the explosion of spending and debt coming from Washington," said Rep. Paul D. Ryan (Wis.), the senior Republican on the House Budget Committee. "If we continue to pursue this policy of Washington as the answer to every problem, it will cost Americans far more than the obvious burdens of ever-higher taxes, interest rates, inflation and debt. It will cost us the freedom to run our own lives."

Added Rep. Dave Camp (Mich.), the senior Republican on the House Ways and Means Committee: "If the House Democrats' unaffordable $1 trillion health-care bill wasn't dead before, it should be now."

Orszag said the president will press forward on health care despite the yawning budget gap, arguing that reform is essential to reining in the skyrocketing costs of government programs such as Medicare and Medicaid, which threaten to drive deficits even higher as the baby-boom generation retires.

"I know there are going to be some who say that this report proves that we can't afford health reform. I think that has it backwards," Orszag told reporters. "The fiscal gap is precisely why we must enact well-designed and fiscally responsible health reform now. . . . Given the long-term nature of that problem, we simply can't afford to wait."

Orszag acknowledged, however, that health-care reform alone cannot solve the nation's budget problems, and he said deficit reduction will be "a top priority" when the president presents his next budget proposal to Congress in February.

A $1.6 Trillion Gap

As the White House released its budget update, the nonpartisan Congressional Budget Office released a similar report Tuesday, confirming the administration's projection that this year's deficit will soar to nearly $1.6 trillion, about 11.2 percent of the overall economy and more than triple last year's deficit of $459 billion. The chasm is almost entirely the result of the severe downturn, the CBO said, which produced the sharpest drop in tax collections since the Great Depression and the biggest increase in spending since 1952, the height of the Korean War.

Still, this year's deficit is lower than officials expected, thanks in large part to reduced spending on the bailout of financial firms. The Troubled Assets Relief Program cost $133 billion this year, the CBO said -- about $200 billion less than projected.

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.

View all comments that have been posted about this article.

© 2009 The Washington Post Company