CBO predicts record $1.6 trillion budget deficit for 2009

The nonpartisan Congressional Budget Office released its budget predictions Tuesday, the same day the White House’s Office of Management and Budget released its forecasts.

Both predicted the budget deficit this year would swell to nearly $1.6 trillion — a record and far above the then-record 2008 budget deficit of $455 billion.

But congressional budget analysts put the 10-year figure at $7.14 trillion, compared with the White House’s cumulative $9 trillion deficit in 2010-2019, $2 trillion more than the administration estimated in May.

One reason for the difference is the CBO projection is based on an assumption that the tax cuts put into place by the Bush administration will expire on schedule by 2011 as dictated by law. However, President Obama’s budget base line hews to his proposal to keep the tax cuts in place for families earning less than $250,000 a year.

Beyond the 10-year forecast, the nation will face further challenges posed by rising health-care costs and the aging of the population, the CBO said.

“The budget remains on an unsustainable path” over the long term and will require some combination of lower spending and higher tax revenues, the agency said.

Both forecasts see unemployment rising to 10 percent before falling. They also suggest growth will return to the economy later this year but that recovery will be slow after the longest and deepest recession since the 1930s.

“This recession was simply worse than the information that we and other forecasters had back in last fall and early this winter,” said Obama economic adviser Christina Romer.

She predicted unemployment could reach 10 percent this year and begin a slow decline next year. Still, she said, the average unemployment will be 9.3 in 2009 and 9.8 percent in 2010. The CBO had similar figures.

Both see the national debt — the accumulation of annual budget deficits — as nearly doubling over the next decade. The total national debt, made up of amounts the government owes to the public, including foreign governments, as well as money it has borrowed from itself, stood Tuesday at a staggering $11.7 trillion.

Congressional Budget Office Director Douglas Elmendorf said if Congress does not reduce deficits, interest rates likely will rise, hurting the economy. But if Congress acts too soon, the economic recovery, once it arrives, could be thwarted, he said.

“We face perils in acting and perils in not acting,” Mr. Elmendorf told reporters.

He said one solution is for Congress to pass measures today that would reduce the deficit in the future, after the economy recovers. That could reassure bondholders that Congress is serious about cutting the deficit without stifling the recovery, Mr. Elmendorf said.

Mr. Obama may have drowned out the rising deficit news with the announcement Tuesday that he intends to nominate Ben S. Bernanke to a second term as chairman of the Federal Reserve. The announcement and a report that consumers are regaining some confidence may have neutralized any disturbance in the financial markets caused by the high deficit projections.

The New York-based Conference Board said Tuesday morning its Consumer Confidence index rose more than expected in August. The index rose to 54.1 from an upwardly revised 47.4 in July. Economists surveyed by Thomson Reuters had expected a slight increase to 47.5. Still, the index is far below 90, the minimum level associated with a healthy economy.

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