U.S. Raises Estimate for 10-Year Deficit to $9 Trillion

By EDMUND L. ANDREWS WASHINGTON — The Obama administration, citing an economic downturn that has been deeper than it had first thought, raised its estimate on Tuesday of the government’s deficit over the next decade to $9 trillion from $7.1 trillion. The Office of Management and Budget also said that it expected the economy to contract 2.8 percent this year, substantially more than previously estimated, and that employment would peak at around 10 percent. Despite the budget shortfall, White House officials said they saw no reason to back away from President Obama’s ambitious and costly goal of overhauling the health care system. The new amount includes the cost of the health care overhaul as well as about $600 billion in additional revenue that the administration hopes to raise, two initiatives Congress has yet to approve. “I know there are going to be some who say that this report proves that we can’t afford health reform,” said Peter R. Orszag, director of the Office of Management and Budget. But he said the opposite was true: the only way to control spiraling Medicare costs, he said, was to get control of overall health care costs by overhauling the system “The size of the fiscal gap is precisely why we must enact fiscally well designed health care reform now,” Mr. Orszag said. Republicans are certain to attack that argument. Indeed, they are already doing so. Analysts at the Congressional Budget Office put their 10-year deficit estimate slightly lower, at $7.14 trillion, though the agency uses a slightly different method to reach its number. The budget office takes into account only policies already in place, while the administration can consider policies and budget decisions that its hopes to install. White House officials predicted that the budget deficit this year will peak at $1.58 trillion, though they said the 2009 shortfall will be about $261 billion lower than they had predicted in May. The main reason is that officials have decided that they will not need another round of bailout money for the nation’s banks. The Congressional Budget Official also estimated a deficit this year of about $1.6 trillion. In the earlier budget forecast, administration officials had created a “placeholder” of $250 billion to cover possible costs of additional bank bailouts. They also assumed higher costs for the Federal Deposit Insurance Corporation’s expansion of deposit insurance and debt guarantees. Even so, the administration is projecting that annual deficits will remain above $1 trillion through 2011 and will be bigger than any since World War II, even when measured conservatively as a share of the nation’s economic output. The government’s total debt would roughly triple by 2019 to $17.5 trillion under the new estimate, almost $2 trillion more than the White House estimated in May. Measured as a share of the nation’s economic output, public debt would hit 76.5 percent of gross domestic product by 2019 — by far the highest percentage in the past half-century — from about 56 percent this fiscal year. This year will be the first time the number has exceeded 50 percent since World War II. The previous estimate was about 67 percent. The biggest reason for the additional red ink is the administration’s recognition that the recession has been deeper and unemployment has been much higher than White House forecasters assumed in their first budget estimate in May. The added depth of the downturn is expected to increase payouts for unemployment benefits and other safety-net programs, while reducing tax receipts more than originally expected. The administration had originally assumed that the economy would shrink 1.2 percent and that unemployment would average about 8.1 percent this year. Instead, the economy is expected to shrink 2.8 percent while unemployment is expected to average 9.3 percent in 2009 and 9.8 percent in 2010. For the first time, administration officials officially predicted on Tuesday that unemployment would climb above 10 percent by early next year, from 9.4 percent in July. The costs of the additional unemployment and the slower growth extend beyond the next year or two, not just because the economy will take longer to return to normal but also because the government’s interest expense will be compounding more rapidly. Mr. Orszag estimated that, by 2019, interest expenses would account for more than 80 percent of the projected deficit of $917 billion. Without offering any details, the White House budget director said that President Obama will soon unveil plans to reduce long-term deficits tied to soaring costs of Medicare, Social Security and other entitlement programs.