Could Red Ink Sink Obama's Agenda? CONGRESSIONAL BUDGET OFFICE Figures, If Accurate, Predict Budget Will Produce $9.3 Trillion Deficit. WHITE HOUSE OPTIMISTIC Obama's Plan, If Enacted, Would Produce Smaller Deficits, It Says
WASHINGTON -- The spectre of raising taxes after the recession ends or paring back President Barack Obama's agenda was raised Friday as the latest congressional estimates showed a significantly worse deficit than predicted by the administration just last month.
The White House insisted, however, that the flood of red ink won't swamp its plans.
The Congressional Budget Office figures, if accurate, predict Obama's budget will produce a $9.3 trillion deficit over 2010-2019. That's $2.3 trillion worse than the administration predicted.
Worst of all, CBO says the deficit under Obama's policies would never go below 4 percent of the size of the economy, figures that economists agree are unsustainable. By the end of the decade, the deficit would exceed 5 percent of gross domestic product, a dangerously high level.
The latest figures throw a major monkey wrench into efforts to enact Obama's budget, which promises universal health care for all and higher spending for domestic programs like education and research into renewable energy.
White House budget chief Peter Orszag said that CBO's economic projections are more pessimistic than those of the White House, some private economists and the Federal Reserve. He said he remained confident that Obama's budget, if enacted, would produce smaller deficits.
Even so, Orszag acknowledged that if the CBO projections prove accurate, Obama's budget would produce deficits that could not be sustained.
"Deficits in the, let's say, 5 percent of GDP range would lead to rising debt-to-GDP ratios that would ultimately not be sustainable," Orszag told reporters.
Deficits so big put upward pressure on interest rates as the government offers more attractive interest rates to attract borrowers.
"I think deficits of 5 percent [of GDP] is unsupportable," said economist Mark Zandi, chief economist at Moody's Economy.com. "It will lead to higher interest rates to the point where it will force policymakers to make changes."
ON TRACK DESPITE CRITICISM
Republicans piled on.
"This report should serve as the wake-up call this administration needs," said House Minority Leader John Boehner, R-Ohio. "We simply cannot continue to mortgage our children and grandchildren's future to pay for bigger and more costly government."
But Obama insisted on Friday that his agenda is still on track.
"What we will not cut are investments that will lead to real growth and prosperity over the long term," Obama said. "That's why our budget makes a historic commitment to comprehensive health care reform. That's why it enhances America's competitiveness by reducing our dependence on foreign oil and building a clean energy economy."
Obama's $3.6 trillion budget for the 2010 fiscal year beginning Oct. 1 contains programs to overhaul the U.S. health care system and initiate new "cap-and-trade" rules to combat global warming.
Both initiatives involve raising federal revenues sharply higher, but those dollars wouldn't be used to defray the burgeoning deficit and would instead help pay for Obama's health plan and implement Obama's $400 tax credit for most workers and $800 for individuals. …