OMB Sees Record $482 Billion Deficit for Fiscal 2009

The White House yesterday predicted in its mid-session budget review a record-high federal deficit of $482 billion for fiscal 2009, and reduced by about 25% its earlier predictions for real economic growth in 2009.

The Office of Management and Budget said the deficit should "fall sharply" after 2009 and eventually turn into a surplus by 2012 if the current administration's fiscal policies continue.

While troubles in the credit market, a housing slump, skyrocketing gas prices, and inflation have weakened the economy, American exports have generated more than 40% of the country's economic growth over the past year and "offset much of the negative effects on growth from declines in residential investment," the OMB report said.

The economic stimulus package enacted in February also positively affected the forecast, and the Bush administration has lowered its earlier deficit projection for 2008 to $389 billion, a cut of about $21 billion, the office said.

But congressional housing and Medicare legislation could change the economic prognosis, administration economists warned during a press conference on the review.

The massive housing bill that passed over the weekend and which President Bush is expected to sign, and a veto override on Medicare legislation this month, were "not fully captured" by the review, said OMB director Jim Nussle.

Continued high deficits could lead to publicly held debt reaching almost 300% of gross domestic product by 2080, the report said.

The deficits for 2008 and 2009 will increase publicly held debt as a share of gross domestic product to 38% and 40.2%, respectively, the report said.

Federal outlays will be $11 billion and $26 billion above earlier predictions for 2008 and 2009 respectively, the OMB said.

But some spending - such as that for highways - will be smaller than initially expected for 2008. Highway trust fund outlays this year are now estimated to be $1.6 billion less than originally projected. So although the trust fund will see a $1.5 billion decline in revenue, due to a drop in revenue generated mostly by fuel taxes, its shortfall by the end of fiscal 2009 should be $3.1 billion, or down about $100 million from the OMB's February estimate.

The largest reductions in federal outlays came in the category of interest on publicly held debt, the report said, "reflecting lower-than-expected interest rates, and slower rates of spending from discretionary appropriations."

The OMB said it expects the 10-year Treasury bond yield to average 4% in 2008 and rise to 5.3% by 2012.

Democrats slammed the administration's fiscal policies after the OMB released its analysis.

"There has been significant underinvestment in the infrastructure of our country," said Sen. Kent Conrad, D-N.D., chairman of the Senate Budget Committee, after the OMB released its mid-session review.

Nussle however argued that Congress, in its reluctance so far to pass appropriations bills, is "gambling on the election and hoping that they can get a better deal from the next president."

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