The next president will inherit a record budget deficit of $482 billion, according to a new Bush administration estimate released Monday.
The administration said the deficit was being driven to an all-time high by the sagging economy and the stimulus payments being made to 130million households in an effort to keep the country from falling into a deep recession. But the numbers could go even higher if the economy performs worse than the White House predicts.
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 by the widely cited “blue chip” consensus of leading economists.
The administration also sees inflation averaging 3.8percent 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.
A $482 billion deficit, however, would easily surpass the record deficit of $413 billion set in 2004.
The deficit numbers for 2008 and 2009 represent about 3 percent of the size of the economy, which is the measure seen as most relevant by economists. By that measure, the 2008 and 2009 deficits would be smaller than the deficits of the 1980s and early 1990s, when Congress and earlier administrations cobbled together politically painful deficit-reduction packages.
The administration actually underestimates the deficit, however, 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.
The White House in February had forecast that next year's deficit would be $407billion, which puts the increase in the projections at $72 billion.
Figures for the 2008 budget year ending Sept. 30 will actually drop from an earlier projection of $410 billion to $389billion, the report said.
The White House still projects that the budget will reach a surplus by 2012, helped by revenues boosted by optimistic economic projections of economic growth.
Still, the new figures are so eye-popping in dollar terms that it may restrain the appetite of the next president to add to it with expensive spending programs or new tax cuts.
John McCain used the news to slam both the Bush White House for its “profligate spending” and Democratic rival Barack Obama for saying he would not try to balance the budget.
“I have an unmatched record in fighting wasteful earmarks and unnecessary spending in the U.S. Senate and I have the determination and experience to do the same as President,” McCain said in a statement.
Obama's campaign used the new numbers to attack McCain for embracing Bush's tax cuts. Obama, said campaign policy director Jason Furman, “will restore balance and fairness to our economy by cutting wasteful spending, shutting corporate loopholes and tax havens, and rolling back the Bush tax cuts for the wealthiest Americans, while making health care affordable and putting a middle class tax cut in the pocket of 95 percent of workers and their families.”