White House Narrows 2010 Deficit Estimate to $1.47 Trillion
U.S. President Barack Obama makes remarks at the White House in Washington. Photographer: Brendan Hoffman/Bloomberg
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A mid-year budget review by the Obama administration forecasts the deficit will be $1.47 trillion this year and $1.42 trillion next year as the U.S. struggles to recover from the recession.
This year’s budget shortfall is $84 billion less than President Barack Obama’s budget office projected in February because of lower than projected spending for unemployment and some government programs. Still, the total would be a record and represent 10 percent of gross domestic product.
The administration projects the U.S. economy will grow 3.2 percent this year, compared with 2.7 percent forecast in February. Growth is projected at 3.6 percent next year and 4.2 percent in 2012. The review says the unemployment rate will average 9.7 percent this year, 9 percent next year and won’t fall below 6 percent until 2015.
“The most pressing danger we now face is unacceptably weak growth and persistent unemployment,” budget director Peter Orszag said in a conference call with reporters yesterday as the White House released the annual report.
The review was published less than four months before the midterm elections that will decide control of Congress. Republicans, seeking to overturn Democratic majorities in the House and Senate, say they will make government spending and debt a top issue in the campaign.
Representative Paul Ryan of Wisconsin, the top Republican on the House Budget Committee, said Obama, after 18 months in office, must take ownership of the budget instead of laying blame on the previous administration.
‘Relentless Expansion’
The mid-year review is “a revealing look at the costly consequences of this administration’s relentless expansion in the size and scope of the federal government,” Ryan said in a statement.
Even as the economy returns to growth, the OBM projects tax receipts will be lower over the next decade than originally forecast in February.
The revised numbers reflect “the slow pace of the economic recovery,” said David Primo, a political science professor who tracks budgets and politics at the University of Rochester. “This spells trouble for Obama’s goal to cut the deficit in half by the end of his first term.”
The White House report says the projections show the budget is “still on track” to meet the president’s goal, going from 9.2 percent of gross domestic product when Obama took office in January 2009 to 4.3 percent of GDP for fiscal 2013.
Long-Term Effects
“The collapse of the housing bubble and the subsequent financial crisis have taken a significant toll on the economy, and many of the after-effects are likely to be felt for years to come,” the Office of Management and Budget report says.
Senator Kent Conrad of North Dakota, the Democratic chairman of the budget committee, said “the real challenge” facing the government is dealing with deficits over the longer term because of the aging U.S. population and rising health-care costs.
“What we should be doing now is putting in place deficit reduction policies that will kick in after the economy has more fully recovered,” Conrad, a member of the president’s deficit commission, said in a statement. “If we fail to act, we could see deficits return to current levels or worse, and continue unabated into the future.”
Obama created the 18-member deficit commission to recommend by December, after the midterm elections, ways to curb deficits to about 3 percent of the GDP by 2015, a level most economists say is sustainable.
Public Debt
The federal debt, the sum of all prior deficits, is projected to rise to $10.6 trillion, or 68.9 percent of the GDP in 2011 and will continue increasing over the next decade to a projected 77.4 percent of GDP in 2020, according to the report.
“The problem is, we have these structural deficits over the longer term, and without big changes to taxes and spending, that presents a problem to longer-run economic growth,” Gus Faucher, an economist at Moody’s Analytics Inc., said before the report’s release.
The report cites signs indicating continued economic growth, including expanded consumer and business spending. “The U.S. economy still faces strong headwinds,” the document says, including constrained credit markets, an “overhang” of unsold houses and cuts in spending by state governments.
Another impediment is the European debt crisis, which is putting the continent’s recovery at risk, the budget office says. “The European Union has acted forcefully, however, to confront these issues,” it says.
Inflation
The new budget forecast sees inflation under control, rising 1.6 percent this year, against a 1.9 percent increase forecast in February. Prices may rise 1.3 percent next year, compared with 1.5 percent forecast when the budget was issued in February.
A CNN-Opinion Research Corp. poll released yesterday showed 42 percent of those surveyed approved of Obama’s handling of the economy while 57 percent disapproved. It was the lowest approval rating since he took office. The survey conducted July 16-21 among 1,018 adults had an error margin of plus or minus 3 percentage points.
The budget review is one of Orszag’s last major actions before he leaves his post this month. Obama has nominated Jack Lew, a former budget chief under President Bill Clinton, to succeed Orszag as director of the OMB.
To contact the reporter on this story: Roger Runningen in Washington at rrunningen@bloomberg.net.
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