Asia-Pacific

CBO: US budget deficit projected at $1.35T

(Agencies)
Updated: 2010-01-26 23:39

WASHINGTON: The latest congressional budget estimates out Tuesday predict a $1.35 trillion deficit for this year as the economy continues to slowly recover from the recession.

The Congressional Budget Office report predicts a sluggish economic recovery and continued high deficits that present twin political problems for President Barack Obama and his Democratic allies.

The report sees a slow rebound of the economy, with unemployment averaging 10.1 percent this year as the economy grows by just over 2 percent. It would grow only slightly more next year with an unemployment rate of 9.5 percent.

"Economic growth in the next few years will probably be muted in the aftermath of the financial and economic turmoil," the CBO report says.

The latest estimates also see a $1.35 trillion deficit for the current budget year, dropping to $980 billion next year - but only if a host of tax cuts enacted under President George W. Bush are allowed to expire.

It's a sobering reminder of the fundamental imbalance of the federal government's budget that comes just days before Obama's Feb. 1 budget submission. The White House says Obama will propose a three-year freeze on domestic agency budgets, though the savings would barely make a dent. It hasn't said whether Obama will proposes tax hikes or cuts to spiraling benefit programs such as Medicare, Medicaid and Social Security.

The deficit would slide to $480 billion by 2015, CBO says, but only if tax cuts on income, investments and large estates are allowed to expire at the end of this year. Most budget experts see deficits as far higher once tax cuts and other policies are factored in.

The 2010 deficit figure is in line with previous estimates and would be a slight decline from last year's $1.4 trillion shortfall. But plans afoot on Capitol Hill for a new jobs bill and a coming Obama request for war funds would add to the total.

The figures arrived just hours before the Senate is likely to reject a White House-backed plan to establish a bipartisan task force to recommend steps to curb the deficit.

The figures bring continued bad news on the deficit, keeping the pressure on Obama and congressional Democrats to demonstrate they're serious about taking on the flood of red ink.

The spending freeze, expected to be proposed by Obama during the State of the Union address on Wednesday, would apply to a relatively small portion of the federal budget, affecting a $477 billion pot of money available for domestic agencies whose budgets are approved by Congress each year. Some of those agencies could get increases, others would have to face cuts; such programs got an almost 10 percent increase this year. The federal budget total was $3.5 trillion.

The freeze on so-called discretionary programs would have only a modest impact on a deficit expected to match last year's $1.4 trillion. The steps needed to really tackle the deficit include tax increases and curbs on benefit programs like Medicare, Medicaid and Social Security.

That's the idea driving the Obama-backed plan to create a special task force to come up with a plan to curb the spiraling budget deficit. But the Senate sponsors of the plan say it's attracted too much opposition from the right and left to prevail.

Republicans say the panel - it would try to develop a deficit reduction blueprint after the November elections for a vote before the new Congress convenes - would lead to big tax hikes. Democratic opponents say they don't want to vote on proposals to cut benefit programs like Social Security without being able to shape the plan.

Obama's three-year spending freeze will be part of the budget Obama will submit Feb. 1, senior administration officials said, commenting on condition of anonymity to reveal unpublished details.

It's likely to confront opposition on Capitol Hill, where a handful of powerful lawmakers write 12 annual appropriations bills. They've gotten used to hefty increases but now are being asked to tighten their belts. House Appropriations Committee Chairman David Obey, D-Wis., declined to comment, his spokesman said.

The Pentagon, veterans programs, foreign aid and the Homeland Security Department would be exempt from the freeze.

The savings would be small at first, perhaps $10 billion to $15 billion, one official said. But over the coming decade, savings would add up to $250 billion.

The White House is under considerable pressure to cut deficits - the red ink hit a record $1.4 trillion this year - or at least keep them from growing. Encouraged by last week's Massachusetts Senate victory, Republicans are hitting hard on the issue, and polls show voters increasingly concerned.

Sen. John McCain, who lost to Obama in last year's presidential election, said he supports any attempt to cut discretionary domestic spending. "We need to do so," he said Tuesday.

But in an appearance on ABC's "Good Morning America," the Arizona Republican said Obama "has got to veto bills that are laden with pork-barrel spending, earmarks."