Weak revenue growth and accelerated spending – including an economic stimulus package that returned billions to taxpayers – will drive the federal deficit to $407billion in the fiscal year that ends this month, more than double last year's $161billion, congressional budget analysts said Tuesday.
With the economy expected to remain sluggish for at least the next several months, the next president will take office facing a projected deficit of $438billion, budget analysts predict – the largest in dollar terms in U.S. history, exceeding the previous record of $413billion in 2004. And that number could easily climb above $500billion if Congress acts, as expected, in the coming months to restrain the growth of the alternative minimum tax, budget analysts said.
In January, congressional budget analysts had estimated the deficit would be $219billion by year's end. This summer, however, the White House estimated that that number was likely to spike to $389 billion because of new spending.
Further complicating the budget picture is this weekend's takeover by the Treasury Department of mortgage giants Fannie Mae and Freddie Mac.
Peter Orszag, director of the Congressional Budget Office, the official scorekeeper of the nation's revenues and expenditures, announced that he plans to incorporate the companies directly into the budget when he re-examines the nation's fiscal picture in January. The two companies together hold or insure about half of the nation's 12million residential mortgages and claimed more than $1.5 trillion in debt at the end of the second quarter.
Because that debt is backed by assets, Orszag said, it would not significantly affect the national debt, which now stands at more than $9.5trillion. “Yes, they have $1.5 trillion in debt. But they have something close to that number in assets and the net number is not that big,” he said.
Orszag said it is also not clear how the companies would affect the deficit because government accounting methods do not reflect the risk inherent in assuming control of millions of mortgage-backed securities in the middle of the worst housing bust since the Great Depression.