Federal Deficit to Hit $1.58 Trillion This Year

Published August 20, 2009

| AP

WASHINGTON -- The White House plans to announce the federal deficit will be about $262 billion less than officials predicted earlier this year -- in part because the administration has provided less aid than expected to Wall Street.

The federal deficit this year will total $1.58 trillion, a senior White House official said late Wednesday. That's three times more red ink than last year. The official spoke on the condition of anonymity to discuss the report before its release next Tuesday while President Barack Obama will be on vacation in Massachusetts.

The nonpartisan Congressional Budget Office is expected to release its mid-session review the same day. It estimated in June that it expected a deficit of $1.825 trillion.

The report for the budget year that ends Sept. 30 also will predict Washington to spend $3.653 trillion this year, the official said. Revenue, however, would reach only $2.074 trillion.

The new deficit numbers are record shattering, but would give the administration the opportunity to say that its policies have avoided a more extreme financial crisis and eliminated the need for further bank infusions.

Still, the deficit amount is a tremendous obstacle for an administration trying to undertake massive policy overhauls in health care and the environment.

"Whether it's $1.6 trillion or $1.8 trillion, it's pretty bad," said Robert Bixby, executive director of the bipartisan fiscal watchdog The Concord Coalition. "I hope no one tries to spin that as good news."

But Stan Collender, a former congressional budget staffer, said the White House's new deficit numbers can't be blamed on Obama. Collender, now with Qorvis Communications, a Washington consulting firm, noted that when President George W. Bush left office the deficit estimate for this fiscal year was $1.2 trillion and that didn't include a tax adjustment and additional spending for operations in Iraq and Afghanistan, approved this year, that Bush also would have sought.

The midsummer report was supposed to have been released in mid-July, but was delayed, leading to speculation the White House was delaying the bad news until Congress left on an August recess. Other administrations delayed releasing their versions of this report during their first year.

Obama's budget had included a $250 billion placeholder for a second bailout of the nation's troubled banks but he did not ask Congress for it amid concerns the administration was spending too heavily. The administration also had anticipated more banks failing, but the survival of most banks saved billions for Washington.

The report comes during a rough patch for Obama's presidency. The rancor surrounding the Democrats' proposed health care overhaul came during a monthlong break when much of Washington is in a lull.

The administration earlier this year predicted that unemployment would peak at about 9 percent without a big stimulus package and 8 percent with one. Congress did pass a $787 billion two-year stimulus measure, yet unemployment soared to 9.4 percent in July and appears headed for double digits. Most of that stimulus will occur in the coming fiscal year.

The nation's debt now stands at $11.7 trillion. In the scheme of things, that's more important than talking about the deficit, which only looks at a one-year slice of bookkeeping and ignores previous debt that is still outstanding.

Economists predict that an improved economic climate could help reduce the deficit in the 2010 fiscal year to $1.3 trillion, though White House economists had forecast a slightly smaller figure of $1.26 for the next fiscal year. Obama has promised to reduce the budget deficit to $512 billion in the 2013 fiscal year.

"The deficit is obviously very large and a problem," said economist Mark Zandi of Moody's Economy.com. "But it's not quite as bad as what expectations were a few months ago."

Earlier this year, Zandi, whose observations are frequently cited by administration and congressional officials, had predicted that the administration would have to get congressional approval for additional rescue funds for financial institutions.

"It's working out better than I anticipated," he said.

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