White House sees record budget gap in 2009
NEW YORK -- Inflated by the sagging economy and the payout of taxpayer rebate cheques, the U.S. budget deficit is set to balloon to a record of nearly half a trillion dollars in fiscal 2009, it was revealed on Monday.
The whopping budget gap is bound to put a spotlight on the fiscal policies of presidential hopefuls Barack Obama and John McCain.
As part of its mid-season budget review, the White House projected a budget deficit of US$482-billion for fiscal 2009, which begins on Oct. 1. The estimate jumped US$74-billion from the Bush administration's estimate in February.
The deficit for the current fiscal year is forecast to total US$389-billion, US$21-billion less than the administration's previous forecast.
When U.S. President Bush took office in 2001, budget surpluses were forecast to continue for years, bolstered by a decade of strong economic growth. But the budget soon sank into the red, sapped by the Sept. 11 terrorist attacks, a recession and lost revenue from massive tax cuts from the Bush administration.
The administration is forecasting the budget will return to black ink in 2012. But many economists believe that view is overly optimistic given the struggling economy and the projection doesn't include spending on the wars in Iraq and Afghanistan beyond 2009.
The 2009 budget is being dragged into the red in part by the US$117-billion worth of rebate cheques mailed out to 130 million Americans and other pieces of the bipartisan stimulus package aimed at keeping the U.S. economy from stumbling into a full-blown recession.
The deficit will easily exceed the nominal record of $413-billion set in fiscal 2004.
"If they gave out Olympic medals for fiscal irresponsibility, President Bush would take the gold, silver and bronze," said Sen. Kent Conrad, D-N.D., chairman of the Senate Budget Committee. "With his eight years in office, he will have had the five highest deficits ever recorded."
Economists point out, however, that although it's hitting a record nominally, the projection for 2009 falls within historical norms when measured as an overall percentage of U.S. gross domestic product.
For 2008 and 2009, the budget gaps represent roughly 2.7% and 3.3% of GDP, respectively. That's only a little above historic norms for the past four decades and well below 2004's record.
Still, the gap will leave the next U.S. president with huge challenges.
Senator McCain, the Republican presidential hopeful and a harsh critic of government spending, yesterday reiterated his pledge to balance the budget by the end of his first term if elected.
"[Monday's] news makes that job harder, but should not change our resolve to make the tough decisions and the genuine effort to reach across the aisle that are needed to ensure a lasting solution to the spending problem that threatens the very stability of our economy."
Senator Obama, the Democratic presidential contender, has pledged to repeal some of President Bush's tax cuts. He met in Washington D.C. on Monday with a group of high-powered financial experts, including former treasury secretary Paul O'Neill, former Federal Reserve chairman Paul Volcker and Google chairman Eric Schmidt, among others, to discuss the faltering economy. Billionare investor Warren Buffett participated by telephone.
More than simply balancing the budget, the big fiscal challenge the next U.S. president faces will be grappling with the skyrocketting costs of Social Security and Medicare, said Brian Riedl of the conservative Heritage.
"I'm less worried about the US$15-trillion in public debt than I am about the US$43-trillion hole in Social Security and Medicare over the next 70 years," Mr Riedl told the National Post in an interview. "The debt right now is not big enough to have a substantial impact on the economy."