By Silla Brush and Kevin Bogardus | Posted: 08/25/09 10:11 AM [ET] - 08/25/09 05:07 PM EDT
The Obama administration on Tuesday forecast a soaring 10-year budget deficit, underscoring the difficulty of winning congressional approval of healthcare legislation this year.
The Office of Management and Budget (OMB) raised deficit projections to $9 trillion over the next decade from $7.1 trillion and predicted unemployment would rise above 10 percent.
The CBO forecast is lower than the administration’s because it is based on current law and not policy. As a result, the administration budget projects tax cuts enacted by former President George W. Bush to be extended, which accounts for a higher deficit.
The estimates immediately prompted Republicans to call on the administration to pull back on its proposals to overhaul healthcare.
“This is a flashing red light for any healthcare proposal that doesn’t reduce the cost of healthcare for Americans and their government,” said Sen. Lamar Alexander (Tenn.), chairman of the Senate Republican Conference.
Speaker Nancy Pelosi’s (D-Calif.) office argued it is a “myth” to say that Democratic healthcare bills will add to the deficit and blasted Republicans for increasing the deficit during the presidency of George W. Bush. Pelosi’s office cited a CBO estimate that the House bill would cost $1.042 trillion over 10 years while reducing costs and raising revenue totaling $1.048 trillion. It also said further savings would be found through amendments approved by the Energy and Commerce panel.
In announcing the CBO revisions, Director Doug Elmendorf predicted government tax revenues would continue to decrease while the cost of government services such as Medicaid would rise over the next decade. He said that situation is “unsustainable.”
“That fundamental disconnect will continue to widen past the 10-year window as the population ages and healthcare costs will continue to rise,” said Elmendorf, whose budget scores have at times provided ammunition to critics of healthcare reform.
The administration, however, projected Tuesday that there is $622 billion in savings over 10 years from changes to Medicare and Medicaid. That is up from the $309 billion the administration cited in May.
Elmendorf avoided answering questions on healthcare reform legislation and whether it would lower costs, saying it was not his job to make political forecasts.
“How policymakers respond to this situation is out of my jurisdiction,” Elmendorf said.
The changes in the projections are primarily due to a weaker projected recovery in both 2010 and 2011, along with a continued uptick in levels of unemployment through 2010, according to the Committee for a Responsible Federal Budget.
That group’s president, Maya MacGuineas, said the administration must come up with a plan to get the soaring deficits under control. “The ongoing high levels of red ink are a loud and urgent warning that the White House needs to come up with a credible medium-term budget plan to avert a future fiscal crisis.”
Dean Baker, a liberal economist with the Center for Economic Policy and Research, said the high unemployment figures forecast by the administration and CBO mean millions of people will be struggling to pay for healthcare, rent and mortgages and other necessary expenses. He said policymakers should focus on lowering unemployment rather than the deficit.
“This means there is a serious need for discussion of ways to lower unemployment and stimulate growth, even if it means continuing to carry large deficits until the economy begins a full recovery,” he said in a statement.
The administration cited a worse economic downturn than was estimated earlier in making its forecast for a wider 10-year deficit. But it also cut this year's deficit projection by $262 billion by removing an earlier placeholder to provide additional money to the financial sector if it were needed.
The administration said that while there are signs the economy is improving from the depths of the financial crisis in late 2008 and earlier this year, the recession has taken a steep toll on the economy, and particularly on jobs.
OMB predicted that unemployment will rise from 9.4 percent to more than 10 percent by the middle of 2010 before beginning to fall. The government expects the economy to fall 2.8 percent in 2009, adjusted for inflation, before increasing by 2 percent in 2010. In May, the administration estimated that the economy would contract by 1.2 percent this year.
The deficit in 2010 is predicted at $1.5 trillion, but the administration is bullish on economic growth between 2011-2014.
“The administration expects a relatively long economic expansion, which will proceed most rapidly in 2011-2014 and eventually lower the unemployment rate to below 6 percent,” the OMB said in its mid-session review.
The government's efforts to support the financial sector through the $700 billion bailout package last October and the $787 billion fiscal stimulus package in February have widened the deficit projections. The administration said that 64 percent of the current deficit “is directly attributable to rescue and recovery efforts and other counter-cyclical programs that were essential in preventing a deeper and more costly recession.”
This story was posted at 10:11 a.m. and updated at 5:07 p.m.