Wednesday, August 26, 2009

The U.S. budget deficit will exceed $1.5 trillion both this year and next year, the White House Office of Management and Budget projected Tuesday in its Mid-Session Review.

Both the OMB and the nonpartisan Congressional Budget Office (CBO), which issued a separate report Tuesday, estimated that the U.S. unemployment rate would average about 10 percent next year.

The budget deficit for fiscal 2010, which begins Oct. 1, is projected to total $1.502 trillion, nearly a quarter of a trillion dollars higher than the White House forecast in May, when it released its detailed 2010 budget.

In 2011, the projected deficit of $1.12 trillion would top $1 trillion for the third year in a row.

For the 2010-2019 period, cumulative budget deficits are expected to exceed $9 trillion, averaging more than $900 billion per year. That’s nearly double the $459 billion budget deficit recorded in fiscal 2008, which set the previous record before fiscal 2009.

The $9 trillion in cumulative budget deficits over 10 years is about $2 trillion higher than the Obama administration projected in February and May, but it is in line with March and June estimates by the CBO.

“Whatever their cause, the administration is very concerned about these out-year deficits, and getting those deficits under control is a top priority of the administration,” said OMB Director Peter R. Orszag. He added that the administration’s fiscal 2011 budget, which will be released in February, will “include proposals to put the nation back on a fiscally sustainable path.”

The budget deficit in fiscal 2009, which ends Sept. 30, is expected to total $1.58 trillion, well below the $1.84 trillion deficit that the White House projected in May.

However, the difference relates to the $250 billion “placeholder” that appeared in the Obama administration’s earlier budget estimates for 2009. The “placeholder” was for additional funds for the bank-bailout program. In the end, the administration did not need those funds.

The federal debt held by the public, which totaled $5.8 trillion at the end of fiscal 2008, is expected to more than triple by the end of fiscal 2019, when it will approach $17.5 trillion, according to the administration’s latest estimates.

“These numbers are simply alarming,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan budget-watchdog group. “Even as the economy appears to be stabilizing, we are seeing unmanageable levels of red ink for the foreseeable future.”

The Senate’s top Democrat on the budget was also concerned.

“These deficit levels confirm what I have said for months - that we are on an unsustainable fiscal course for the future,” said Sen. Kent Conrad, North Dakota Democrat, who chairs the Senate Budget Committee.

The administration’s economic assumptions are less optimistic over the next few years than the assumptions that appeared in the original 2010 budget. That change explains part of the increases in cumulative deficits and the national debt.

Gross domestic product (GDP) in 2009, which the administration originally projected would decline by 1.2 percent, is now expected to fall by 2.8 percent. The 2010 budget, first released in February, forecast that the economy would grow by 3.2 percent next year, but that was downgraded to 2 percent on Tuesday.

The administration initially projected that the unemployment rate would decline from 8.1 percent in 2009 to 7.9 percent in 2010 and to 7.1 percent in 2011. In the latest estimates, the unemployment rate is expected to rise from an upwardly revised 9.3 percent in 2009 to 9.8 percent next year before declining to 8.6 percent in 2011.

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