Published July 28, 2008
WASHINGTON – The White House on Monday reported a projection for a $482 billion budget deficit for the budget year ending in September 2009, a number that would be the highest number recorded.
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's a half percentage point more than predicted but also the widely cited "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 — better than the 3.0 percent seen by the blue chip panel.
"The nation's economy has continued to expand and remains fundamentally resilient," said the budget office report.
Senior administration officials downplayed the impact of the number, with one noting that as a percentage of the U.S. gross domestic product, the deficit projection would be roughly 3 percent to 4 percent.
Another senior administration official said "a lot can happen" in 18 months that could worsen or improve the outlook, such as an improved economy leading to better tax returns, or increased spending under a new administration. The official specifically warned about the impact a Democrats.
"Democrats could blow the doors off spending and drive the deficit even higher," the official said.
Congressional Democratic leaders took aim at the administration — and the Republican candidate for the next administration — for what Senate Majority Leader Harry Reid called misguided priorities.
"The large budget deficit is a symptom of the many serious problems that Bush-McCain Republicans refuse to address. Rather than continuing the flawed policies that produced this result, Democrats believe we must change course," Reid, D-Nev., said.
Among the problems Reid said Republicans neglected were renewable energy, health care reform, and refocusing military efforts on Afghanistan. "Until we deal with these underlying problems, our budget deficits and the squeeze on Americas families will only get worse."
Likewise, House Speaker Nancy Pelosi criticized what she called unrestrained spending.
"President Bush has mortgaged our future with record deficit spending on the wrong priorities. An unnecessary and extraordinarily costly war in Iraq has turned record surpluses into record deficits. Meanwhile, our economy is in a severe economic slump as a result of this President’s mismanagement," she said.
White House officials said the increase from February's $407 billion projection for the coming year is due largely to a worse economy as well as higher-than-expected costs from the $168 billion economic stimulus package passed by Congress earlier this year.
The highest post-World War II budget deficit, in terms of a portion of the GDP, was in 1983 when it was 6 percent of the national economy. The record high-dollar mark to date was in 2004, when the deficit reached $413 billion.
The new figure actually underestimates the deficit, since it leaves out about $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.
White House press secretary Dana Perino had no comment on the new outlook figure. But she told reporters that the White House and lawmakers acknowledged months ago that they were going to increase the deficit by approving a short-term boost for the slumping economy.
"Both parties recognized that the deficit would increase, and that that was going to be the price that we pay," Perino said.
Officials said revenues are holding up better than officials hoped for the current year: With costs running about $10 billion lower than expected, the budget deficit is expected to be less than $400 billion at the end of the fiscal year this September.
The deficit for 2007 totaled $161.5 billion, which represented the lowest amount of red ink since an imbalance of $159 billion in 2002. The 2002 performance marked the first budget deficit after four consecutive years of budget surpluses.
That stretch of budget surpluses represented a period when the country's finances had been bolstered by a 10-year period of uninterrupted economic growth, the longest period of expansion in U.S. history.
In his first year in office, helped considerably by projections of continuing surpluses, Bush drove through a 10-year, $1.3 trillion package of tax cuts.
However, the country 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.
House Budget Committee Chairman John Spratt, D-S.C., said the deficit projection confirms "the dismal legacy of the Bush administration: under its policies, the largest surpluses in history have been converted into the largest deficits in history."
The Associated Press contributed to this report.