U.S. Budget Gap Is Revised to Surpass $1.8 Trillion!
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President Obama has lately begun pointing to optimistic signs for the economy, but the continuing crisis still bedevils his budget projections and his domestic agenda.
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The administration, in final budget and tax details released Monday, disclosed a double wallop of bad news from government number-crunchers. First, its Office of Management and Budget reported that the economy had added — both for this year and next — $90 billion to the historically high deficit estimates the administration issued just two months ago.
And the Treasury released revised figures showing that Mr. Obama’s proposal for financing fully half of his health care initiative over the next decade — a 28 percent limit on deductions for Americans in the top two income tax brackets — would raise $267 billion, or roughly $50 billion less than he initially projected. That further complicates the president’s struggles, together with Democrats in Congress, to pay for overhauling health care.
To fill the revenue gap, the Treasury outlined several new ideas for raising nearly $60 billion over 10 years, mainly from tightening rules for inheritance taxes but also from changes in taxing some types of life insurance and other products.
Separately, the chairwoman of the Council of Economic Advisers, Christina Romer, released a preliminary report standing by the administration’s claim that the $787 billion, two-year economic stimulus package that became law in February will save or create 3.5 million jobs by the fourth quarter of 2010, compared with what would have happened without the spending and tax cuts.
The budget office’s revised deficit projections bring the expected shortfall this fiscal year, which ends Sept. 30, to $1.84 trillion, from a February projection of $1.75 trillion. For the 2010 fiscal year, the new estimate is $1.26 trillion, up from $1.17 trillion.
Measured against the economy, this year’s shortfall would be 12.9 percent of the gross domestic product. Next year’s deficit would be 8.5 percent of G.D.P. Even before the revisions, the deficit projections were the highest in more than 60 years, since the end of World War II.
Economists generally agree a country’s annual deficits should not exceed 3 percent of economic output. Mr. Obama, in his 10-year budget outline in February, projected the United States would fall just below that level in the last months of his term, in the 2013 fiscal year. Many analysts consider his economic assumptions too rosy, however, which casts doubt on his deficit forecast.
The president’s budget director, Peter R. Orszag, disclosed the deficit revisions Monday in his blog on the budget office’s Web site. He said they were “driven in large part by the economic crisis inherited by this administration.” He cited Treasury estimates that revenue collections would be $30 billion to $50 billion less this year and next compared with February calculations, and higher-than-expected costs for bank bailouts.
Congressional Democrats echoed the reference to the inheritance from President George W. Bush. “It took eight years for the previous administration to dig this hole. It is going to take time to climb our way out,” Senator Kent Conrad of North Dakota, chairman of the Senate Budget Committee, said in a statement.
Congressional Republicans seized on the new deficit projection to tweak the Democratic administration for its boast last week that its “line-by-line scrub” of the federal budget had produced proposals to save $17 billion in the 2010 fiscal year.
The Senate Republican leader, Senator Mitch McConnell of Kentucky, said in a statement that “the administration acknowledged today that since the president took office, their projections for the deficit grew five times faster than the proposed cuts would save, and that’s assuming all the cuts are enacted” — which they will not be, members of both parties in Congress say.
Mr. Obama’s proposal to limit high-income Americans’ deductions had already hit a wall of opposition in Congress, with the Democratic chairmen of the House and Senate tax-writing committees, among others, objecting that it could depress tax-deductible contributions for charities, colleges and other recipients. The proposal was intended to raise $318 billion of a proposed $635 billion, 10-year reserve fund to introduce cost-saving changes into health care and to expand coverage to the uninsured; the other half was to come from Medicare savings.
Of the new Treasury proposals to raise $60 billion through 2019, more than $24 billion would come from estate and gift taxes that would affect less than three-tenths of 1 percent of estates in any year, according to a senior Treasury official, who spoke to reporters on condition of anonymity. The main change would affect how a taxpayer values property transferred to a family member either at death or during the taxpayer’s life.
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