Published: Wednesday, August 26, 2009
Deficit to hit $1.6 trillion
WASHINGTON — The federal deficit will soar to nearly $1.6 trillion this year, miring the nation in the deepest pool of red ink since the end of World War II, the nonpartisan Congressional Budget Office and the White House reported Tuesday.
The gap between spending and tax collections will amount to 11.2 percent of the overall economy, more than tripling last year’s deficit of $459 billion, the CBO said. The yawning gap is almost entirely the result of the severe economic downturn, the CBO said, which produced the sharpest drop in tax collections since the Great Depression and the biggest increase in spending since the Korean War.
On the bright side, the deficit is now expected to be slightly lower than officials had feared earlier this year, thanks to dramatically reduced spending on the bailout of the nation’s financial institutions that was approved by Congress in October. The Troubled Asset Relief Program cost only $133 billion this year, the CBO said — about $200 billion less than expected in March.
Both the White House and the CBO said the recession should end within a few months, and the CBO credited a $787 billion stimulus package President Barack Obama signed in February with hastening the economic rebound. But congressional economists are predicting “a relatively slow and tentative recovery,” and Christina Romer, chairman of the president’s Council of Economic Advisers, acknowledged that the unemployment rate is likely to hit 10 percent later this year and remain there through the first months of 2010.
Though the deficit figures are a bit better than expected, Republicans leapt upon the ugly numbers Tuesday, arguing that a nation so deeply in hock can’t afford to a sweeping expansion of health coverage for the uninsured, Obama’s top domestic priority.
White House budget director Peter Orszag defended the president’s health care initiative, saying reform is essential to reining in the skyrocketing costs of Medicare and Medicaid, the government health programs that threaten to drive future deficits even higher.
Orszag said that the administration of Obama’s Republican predecessor, George W. Bush, deserves much of the blame for the dark budget picture. More than half of the $9 trillion the nation is projected to have to borrow over the next decade is due to Bush’s refusal to pay for new initiatives, such as sweeping tax cuts, the war in Iraq and a new prescription drug benefit for Medicare recipients, Orszag said.
The White House now projects that the economy will shrink by 2.8 percent this year, grow by a sluggish 2.0 percent in 2010 and heat up to 3.8 percent growth in 2011. Romer predicted an average unemployment rate of 9.8 percent next year.
As a result, government spending on social programs will continue to soar while tax collections will lag behind expectations. And 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 the annual gap between spending and revenue will be $917 billion.
All told, the White House predicts that the nation will have to borrow an additional $9 trillion over the next decade to finance the annual deficits, driving the accumulated national debt to nearly $23 trillion in 2019 — or 76.5 percent of gross domestic product, the highest since 1950.
The gap between spending and tax collections will amount to 11.2 percent of the overall economy, more than tripling last year’s deficit of $459 billion, the CBO said. The yawning gap is almost entirely the result of the severe economic downturn, the CBO said, which produced the sharpest drop in tax collections since the Great Depression and the biggest increase in spending since the Korean War.
On the bright side, the deficit is now expected to be slightly lower than officials had feared earlier this year, thanks to dramatically reduced spending on the bailout of the nation’s financial institutions that was approved by Congress in October. The Troubled Asset Relief Program cost only $133 billion this year, the CBO said — about $200 billion less than expected in March.
Both the White House and the CBO said the recession should end within a few months, and the CBO credited a $787 billion stimulus package President Barack Obama signed in February with hastening the economic rebound. But congressional economists are predicting “a relatively slow and tentative recovery,” and Christina Romer, chairman of the president’s Council of Economic Advisers, acknowledged that the unemployment rate is likely to hit 10 percent later this year and remain there through the first months of 2010.
Though the deficit figures are a bit better than expected, Republicans leapt upon the ugly numbers Tuesday, arguing that a nation so deeply in hock can’t afford to a sweeping expansion of health coverage for the uninsured, Obama’s top domestic priority.
White House budget director Peter Orszag defended the president’s health care initiative, saying reform is essential to reining in the skyrocketing costs of Medicare and Medicaid, the government health programs that threaten to drive future deficits even higher.
Orszag said that the administration of Obama’s Republican predecessor, George W. Bush, deserves much of the blame for the dark budget picture. More than half of the $9 trillion the nation is projected to have to borrow over the next decade is due to Bush’s refusal to pay for new initiatives, such as sweeping tax cuts, the war in Iraq and a new prescription drug benefit for Medicare recipients, Orszag said.
The White House now projects that the economy will shrink by 2.8 percent this year, grow by a sluggish 2.0 percent in 2010 and heat up to 3.8 percent growth in 2011. Romer predicted an average unemployment rate of 9.8 percent next year.
As a result, government spending on social programs will continue to soar while tax collections will lag behind expectations. And 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 the annual gap between spending and revenue will be $917 billion.
All told, the White House predicts that the nation will have to borrow an additional $9 trillion over the next decade to finance the annual deficits, driving the accumulated national debt to nearly $23 trillion in 2019 — or 76.5 percent of gross domestic product, the highest since 1950.
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