U.S. deficit projected to hit $1.3 trillion
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The federal budget for fiscal year 2010 will show a deficit of $1.3 trillion, the Congressional Budget Office announced this morning, the latest number to be injected into what is more of a political issue than an economic one.
The number, released just one day before President Obama gives his State of the Union address, highlights the politics of federal spending in this midterm election year. Obama, under pressure to show that he is serious about curbing outlays, is proposing a freeze on discretionary spending, a relatively minor step.
The president is also seeking a bipartisan task force to recommend steps to curb the deficit, but the fate of the proposal in the Senate is doubtful.
Economically, the CBO found that if no laws or policies change, the federal budget would show a deficit of $1.3 trillion, about 9.2% of gross domestic product in this fiscal year. This would be down from the 9.9% of GDP, or $1.4 trillion posted in 2009, the largest since World War II by percentage.
While this seems good, there are a lot of ifs. On the revenue side, the projections assume that major provisions of the tax cuts enacted in 2001, 2003 and 2009 will expire as scheduled and that temporary changes that have kept the alternative minimum tax from affecting many more taxpayers will not be extended.
On the spending side, it is dependent on Congress not enacting costly legislation in an election year when a new jobs package is already expected, and there probably will be added costs associated with the wars in Iraq and Afghanistan.
According to the CBO, the recession that began two years ago appears to have ended in the middle of 2009, but economic growth in the next few years will probably be “muted.” GDP numbers this week are expected to be a ray of light for the Obama administration and job creation is expected by June, though the nation’s unemployment rate will continue to hover around 10% -- about twice what it was before the recession.
Consumer spending, more than two-thirds of the economy, is expected to be hemmed in by slow growth of income, lost wealth and a tough borrowing market, the CBO said.
Obama will formally announce his moratorium on discretionary spending during Wednesday’s State of the Union address. But the three-year freeze also applies to a $477-billion portion of the $3.5-trillion federal budget. Excluded are defense and social spending such Medicare, Medicaid and Social Security.
Republicans have already begun throwing cold water on the freeze for being too little. Sen. John McCain (R-Ariz.), who faces a challenge from his right this year, said today on ABC’s “Good Morning America” that Obama “has got to veto bills that are laden with pork-barrel spending, earmarks,” a frequent refrain for the former presidential candidate.
The budget deficits accumulate into the federal debt. At the end of 2009, debt held by the public was $5.8 trillion, or 53% of GDP, the CBO said. By the end of 2020, debt is projected to climb to $15 trillion, or 67% of GDP. The last president to pay off the federal debt was Andrew Jackson.
-- Michael Muskal
Twitter.com/LATimesmuskal
