Federal Deficit

As President Obama presents his first budget today, the most daunting goal he has set may not be the ambitious proposals for economic recovery, healthcare reform or revamping the nation's energy policy. Big as those challenges are, they may be child's play compared with his promise to slash the federal budget deficit in half by the end of his first term. Two problems already are apparent if Obama is to cut the $1.3-trillion deficit to $533 billion.

President Bush will leave his successor with a record-high budget deficit of $482 billion, according to an administration estimate released Monday. White House officials blamed the slowing economy and a $150-billion bipartisan stimulus package for the worsening picture for the 2009 fiscal year, but Democrats cited the president's tax cuts and fiscal management over his eight years in office.

The federal deficit hit a new record in the just-completed 2008 budget year under the latest estimates from the Congressional Budget Office. The record $438-billion shortfall for the budget year that ended last week is up from $162 billion posted last year. The previous record of $413 billion was posted in 2004. The CBO said Tuesday that with the economy in a slump, revenues dropped by almost 2%. Corporate income receipts dropped by $65 billion, or nearly 18%.

Compounding terrible economic news, budget officials announced Tuesday that the federal deficit has soared to a record $455 billion, injecting new urgency into the closing days of the presidential campaign about spending in Washington, including efforts to stem the financial disaster. The final accounting for fiscal 2008 produced a larger shortfall than had been projected, reflecting the start of federal efforts to address the economic emergency.

Federal Reserve Chairman Ben S. Bernanke delivered a stern warning to Congress on Thursday to address the national debt, saying spiraling government spending could lead to a "vicious cycle" of even bigger federal budget deficits. "The longer we wait, the more severe, the more draconian, the more difficult the objectives are going to be" in responding to the crisis, he said. "The right time to start was about 10 years ago." Sen. Kent Conrad (D-N.D.

President Bush can balance the budget within five years, or he can get Congress to extend his tax cuts beyond their scheduled expiration, the Congressional Budget Office reported Wednesday -- but probably not both. Bush has said otherwise, committing himself in Tuesday's State of the Union address, as he did earlier this month, to providing Congress on Feb. 5 with spending and tax proposals for fiscal 2008 that would put the budget on a path toward balance by 2012.

Facing an out-of-whack federal budget and a ballooning debt, congressional Democrats made a simple pledge when they took power in January: If lawmakers increased spending or cut the taxes needed to pay bills, they would find money elsewhere to balance the national checkbook. But less than a year later, the plans for what was portrayed as a more responsible fiscal future -- enshrined in stringent new budgeting rules -- have collapsed amid a politically explosive debate over taxes.

The budget deficit will rise to at least $337 billion this year and may well approach or exceed $400 billion because of tax cuts and new spending for hurricane relief and the war in Iraq, congressional budget analysts said Thursday. The latest Congressional Budget Office data also suggest President Bush is unlikely to be able to keep his promise to cut the federal deficit in half by the end of his term.

President Bush today will propose a $2.7-trillion budget that would take another slice out of domestic spending next year -- but still leave a huge $355-billion deficit. In Bush's budget for fiscal year 2007, which begins Oct. 1, the departments of Defense and Homeland Security would continue to grow at a rate greater than inflation.

President Bush on Monday sent Congress a proposed $2.77-trillion budget for 2007 that would boost Defense and Homeland Security while trimming the growth of Medicare and other social service programs. Joshua B. Bolten, Bush's budget director, said the budget's two paramount goals were to "fight and win the global war on terror" and "maintain our economic strength by extending the tax relief that has fueled our economic expansion."