The next US president will inherit a record US budget deficit of US$482 billion, a new Bush administration estimate released on Monday predicted.
The administration said the deficit was being driven to an all-time high by the sagging economy and the stimulus payments being made to 130 million households in an effort to keep the US from falling into a deep recession. But the numbers could go even higher if the economy performs worse than the White House predicts.
The budget office predicts the economy will grow at a rate of 1.6 percent this year and will rebound to a 2.2 percent growth rate next year. That is a half percentage point more than predicted but also the “blue chip” consensus of leading economists. The administration also sees inflation averaging 3.8 percent this year, but easing to 2.3 percent next year.
“The nation’s economy has continued to expand and remains fundamentally resilient,” the budget office report said.
A US$482 billion deficit, however, would easily surpass the record deficit of US$413 billion set in 2004. The new figure actually underestimates the deficit, since it leaves out about US$80 billion in war costs. In a break from tradition — and in violation of new mandates from Congress — the White House did not include its full estimate of war costs.
The White House in February had forecast that next year’s deficit would be US$407 billion, which puts the increase in the projections at US$72 billion.
Figures for the current budget year ending Sept. 30 will actually drop from an earlier projection of US$410 billion to US$389 billion, the report said.
The White House still projects that the budget will reach a surplus by 2012, helped by revenues boosted by optimistic economic projections of economic growth.
The deficit numbers for this year and next represent about 3 percent of the size of the economy, which is the measure seen as most relevant by economists. That’s considerably smaller than the deficits of the 1980s and early 1990s.
Still, the new figures are so eye-popping in dollar terms that it may restrain the appetite of the next president to add to it with expensive spending programs or new tax cuts. In fact, pressure may build to allow some tax cuts enacted in 2001 and 2003 to expire as scheduled at the end of 2010, with Congress also feeling pressure to curb spending growth.
Last year’s deficit totaled US$161.5 billion, which represented the lowest amount of red ink since an imbalance of US$159 billion in 2002. The 2002 performance marked the first budget deficit after four consecutive years of budget surpluses.
In his first year in office, helped considerably by projections of continuing surpluses, President George W. Bush drove through a 10-year, US$1.35 trillion package of tax cuts. However, the US fell into a recession in March 2001 and government spending to fight the war on terrorism contributed to pushing the deficit to a record in dollar terms in 2004.
Also see: McCain, Obama slam White House for budget deficit
Also see: US downgrades economic growth
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