WaPo: Federal Shortfall To Double This Year

[marmar]

Federal Shortfall To Double This Year
Next President To Inherit Deficit Of $500 Billion


By Lori Montgomery
Washington Post Staff Writer
Wednesday, September 10, 2008; Page A01


A weak economy and a sharp increase in government spending will drive the federal budget deficit to a near-record $407 billion when the budget year ends later this month, and the next president is likely to face a shortfall in January of well over $500 billion, congressional budget analysts said yesterday.

A deficit of that magnitude could severely constrain the next administration's agenda, regardless of whether Sen. John McCain (Ariz.), the Republican candidate, or Sen. Barack Obama (Ill.), his Democratic opponent, wins in November. Each has promised billions in new tax cuts or new spending. The expanding deficit also will increase the national debt and could impair future economic growth, particularly if lawmakers are forced to pay down that debt by raising taxes.

This year's deficit will be more than double last year's $161 billion, and it will rise from 1.2 percent of the gross domestic product to nearly 3 percent. If the next president extends some or all of President Bush's signature tax cuts, as both candidates have promised, annual deficits could balloon to as much as 5 percent of the economy, rivaling the dark fiscal days of the early-1990s and those of the Reagan administration, said Peter Orszag, director of the Congressional Budget Office.

The budget picture is likely to grow even bleaker once government analysts factor in the anticipated costs of the Treasury Department's decision last weekend to take over struggling mortgage-finance giants Fannie Mae and Freddie Mac.

Orszag declined yesterday to attach a price tag to the takeover, under which Treasury Secretary Henry M. Paulson Jr. has pledged to invest as much as $200 billion to keep the companies solvent. However, Orszag said Paulson's action has bound the government so tightly to the two companies that he will incorporate them directly into the federal budget when he reexamines the nation's fiscal picture in January. ......(more)

The complete piece is at: http://www.washingtonpost.com/wp-dyn/content/article/2008/09/09/AR2008090901029.html