U.S. deficit prediction lowered but expected to set record
WASHINGTON — The Obama administration on Friday trimmed its estimate of the federal budget deficit for this year but said the weak economy had led it to increase its deficit projection for next year.
The White House’s Office of Management and Budget projected that the deficit for the fiscal year ending Sept. 30 would be $1.47 trillion, $84 billion lower than it estimated in February — but still a record in dollar terms. Much of the reduction stemmed from lower than anticipated outlays for unemployment insurance.
Measured as a percentage of total economic output — the gauge that economists say is most meaningful — the deficit would be 10 percent of gross domestic product. That is about the same as last year, a level that can’t be sustained over the long run without endangering the economy, but well below the records set during World War II.
For next year, the White House projected a deficit of $1.42 trillion, $150 billion more than it had estimated in February. Next year’s projected deficit would be 9.2 percent of the economy.
The new estimates also predict that unemployment will drop only slightly next year, to 9 percent from 9.5 percent now. The jobless rate is expected to fall to 8.1 percent in 2012, the report said.
“The economy is still struggling; too many Americans are still out of work, and the nation’s long-term fiscal trajectory is unsustainable, threatening future prosperity,” the report said.
For President Barack Obama, the faltering economy combined with the huge deficit may be a political liability, possibly posing a short-term threat to the Democratic majority in Congress, and a long-term threat to his own prospects for re-election in 2012.
Republicans were quick to jump on the revised budget numbers to criticize the president’s policy, including the stimulus package and other government spending, which many blame for the ballooning deficit.
“Our way of life is being threatened by an economy with too much debt because of a government that spends too much and taxes too much,” said Rep. Eric Cantor, R-Va. “Republicans are ready to govern and put a check on the Obama administration’s unprecedented spending binge so that Americas can get back to work and our children have more opportunity, not a bigger bill because our generation failed to lead responsibly.”
Democrats quickly sought to remind voters that the budget gap is due primarily to the effects of the recession, which depressed tax revenue and forced policymakers to throw hundreds of billions of dollars into economic rescue programs.
“That federal response, including actions by the Federal Reserve, efforts to stabilize the financial sector started by the Bush administration, and last year’s economic recovery package, has successfully pulled the economy back from the brink,” said Sen. Kent Conrad, D-N.D. “Although the economy remains fragile and the unemployment rate is still far too high, economic and job growth have begun to return.”