Thursday, October 8, 2009
US budget deficit hits record high of $1.4 trillion
The federal budget deficit tripled to a record $1.4 trillion for the 2009 fiscal year that ended last week, US congressional analysts said.The Congressional Budget Office estimate, while expected, is bad news for the White House and its allies in Congress as they press ahead with health care overhaul legislation that could cost $900 billion over the next decade.The unprecedented flood of red ink flows from several factors, including a big drop in tax revenues due to the recession, $245 billion in emergency spending on the Wall Street bailout and the takeover of mortgage giants Fannie Mae and Freddie Mac. Then there is almost $200 billion in costs from President Barack Obama's economic stimulus bill, as well as increases in programs such as unemployment benefits and food stamps.The previous record deficit was $459 billion and was set just last year.The Obama health plan would be "paid for" with new revenues and curbs in spending. But the overhaul effort would eat up tax increases and spending cuts that could be used to bring the deficit down.Obama has attributed the nation's dismal fiscal situation to the financial and economic crises he inherited. White House Budget Director Peter Orzsag is overseeing the administration's efforts to tackle the soaring deficit next year."As part of the fiscal 2011 budget, we will be putting forward proposals that return us to a fiscally sustainable path and that have lower deficits in the out-years," Orszag said in a recent Associated Press interview.The huge deficits have raised worries about the willingness of foreigners to keep purchasing Treasury debt. The administration promises that once the recession is over and the financial system is stabilized, it will move forcefully to get the deficits under control.Economists worry that the deficits could place upward pressure on interest rates in future years as the government has to offer higher rates to attract investorsRepublicans pounced on the bad news."This new CBO data makes it clear that our children and grandchildren will end up buried under a mountain of debt if we continue taxing, spending and borrowing at these dangerous levels," House Minority Leader John Boehner, R-Ohio, said. "How many alarm bells have to be set off before Washington Democrats get serious about tackling dangerous budget deficits?"Economists say the best measure of the deficit is to compare it with the size of the economy. On those terms, the 2009 deficit reached almost 10 percent of gross domestic product, a level not witnessed since World War II.The White House says it wants deficits in the next few years to stabilize at or below 3 percent of GDP. But by the White House's own estimates released in August — which predicted deficits averaging about 4 percent through the rest of the decade — it would take several hundreds of billions of dollars in new taxes or spending curbs to just get the deficit down to 3 percent of GDP.Those steps would easily exceed the efforts under way now to pay for Obama's health care plan. For example, bringing the 2014 deficit back in line with Obama's goals would require about $240 billion in deficit-closing steps in that year alone — near the amount of revenue that would flow from the expiration of former President George W. Bush's tax cuts.Such steps would almost certainly force Obama to break his promise to limit tax increases to the wealthy.Other budget experts predict higher deficits that would require even more painful steps.History has not been kind recently to presidents who tackle the deficit. President George H.W. Bush lost re-election in 1992 after violating his "no new taxes" promise. His successor, Bill Clinton, lost control of Congress in 1994 after pushing through a deficit-reduction plan laden with tax hikes.Still, Democrats controlling Congress acknowledge they have no choice but to tackle the problem — even if they inherited it from George W. Bush."It should be remembered that fiscal year 2009 began during the Bush administration, which left in its wake the worst recession since the 1930s, including a sharp plunge in revenues," said Rep. John Spratt Jr., D-S.C., chairman of the House Budget Committee. "But today's figures send us the latest alarm. As the economy stabilizes and starts to recover, we will have to turn our focus back to deficit reduction."