Watchdog forecasts $1 trillion budget deficit

By David M. Dickson (Contact) | Saturday, November 1, 2008

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Sen. Barack Obama's economic stimulus package would cost about $190 billion, nearly four times the $52.5 billion stimulus plan proposed by Sen. John McCain, according to a study by a bipartisan budget watchdog group.

Regardless of who is elected president, the budget deficit for fiscal 2009, which began Oct. 1, "will in fact reach $1 trillion," predicted Maya MacGuineas, president of the Committee for a Responsible Federal Budget, whose US Budget Watch affiliate issued the report Monday.

She noted that her deficit prediction was based on a moderate use of the $700 billion in bailout funds Congress approved Oct. 2.

"There probably should be a stimulus plan, and there inevitably will be," Ms. MacGuineas said in an interview. "But anybody who thinks we can plow ahead with another economic stimulus plan without taking action to address the nation's fiscal problems is laying the groundwork for the next economic and fiscal crises."

Mr. McCain's stimulus package would spend up to $300 billion in taxpayer funds refinancing mortgages based on the current value of homes and at subsidized interest rates. However, because the $300 billion for this plan would come from the $700 billion bailout bill that has already been passed, US Budget Watch's analysis did not include these funds in the cost of his stimulus plan.

On a temporary basis, Mr. McCain would reduce the capital-gains tax rate, increase the amount individuals are allowed to deduct for capital losses, exempt most unemployment benefits from taxation and establish a tax rate of 10 percent for the first $50,000 withdrawn from most retirement accounts.

The Obama campaign said Mr. McCain's housing plan would bail out irresponsible lenders. "His plan would force the Treasury to pay full face value for distressed mortgages, which would spend $300 billion on a windfall to mortgage lenders," said Jason Furman, Mr. Obama's economic policy director.

"The McCain plan isn't economic stimulus," Mr. Furman said. "It is giving money to banks and asking nothing in return. It is a reward for bad behavior."

Douglas Holtz-Eakin, chief economic adviser for Mr. McCain, said his housing plan would "break the foreclosure crisis and recapitalize the banking system in one fell swoop."

Among other things, Mr. Obama's stimulus plan would issue emergency energy rebates of $500 per worker and $1,000 per family, ship $25 billion to the states, spend an additional $25 billion on infrastructure, mandate a 90-day moratorium on foreclosures for companies participating in the $700 billion financial-industry bailout and offer a $3,000 tax credit for each full-time worker corporations hire during 2009 and 2010.

Mr. Holtz-Eakin ridiculed the $3,000 tax credit, saying there was "a fundamental contradiction" in Mr. Obama's economic plan. The $3,000 tax credit would "put a Band-Aid on the arterial wound" of Mr. Obama's basic policies, which, Mr. Holtz-Eakin said, include raising taxes on small businesses, increasing dividend and capital-gains tax rates, the "play-or-pay health insurance mandate" for businesses and the massive tax increases that would occur "after carbon dioxide is declared a pollutant."

Mr. Furman, noting that "working families saw their incomes decline by $2,000 in the economic 'expansion' from 2000 to 2007," said the Obama plan offers "immediate relief for struggling families."

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