Rising budget deficit weakens economy


The nonpartisan CBO says that once the cost of wars is added to its "baseline" deficit estimate of $219 billion, the deficit would be about $250 billion.

"After three years of declining budget deficits, a slowing economy this year will contribute to an increase in the deficit," the CBO report said.

Such a figure greatly exceeds the $163 billion in red ink registered last year. Including likely but still unapproved outlays for the wars in Iraq and Afghanistan, the deficit for 2008 would total about $250 billion, CBO said.

Senate Budget Committee Chairman Kent Conrad, D-N.D., said the 2008 deficit would reach more than $350 billion once the costs of an upcoming economic stimulus measure under negotiation between the Bush administration and Congress are factored in.

The CBO crunches economic and budget data for lawmakers.

Unlike an increasing number of economists, CBO does not forecast a recession this year. It instead forecasts a growth rate of 1.7 percent, down from 2.2 percent real growth in the gross domestic product (GDP) last year.

"Although recent data suggest that the probability of a recession in 2008 has increased, CBO does not expect the slowdown in economic growth to be large enough to register as a recession," CBO said. The CBO economic forecast was completed last month, before a recent spike in unemployment and the release of disappointing holiday retail sales figures.

"A number of ominous economic signs have emerged since CBO finalized last month the forecast underlying today's report," said House Budget Committee Chairman John Spratt Jr., D-S.C. "Today's new economic forecast thus adds to the growing evidence that the economy has weakened, and that policymakers in Washington must take action."

CBO Director Peter Orszag was scheduled to testify before the House Budget Committee.

Officially, CBO predicts the 2008 deficit at $219 billion, but that figure fails to account for at least an additional $30 billion in war costs and the likely infusion of deficit-financed economic stimulus measures such as income tax rebates, business tax breaks and help for the unemployed now under discussion on Capitol Hill and at the White House.

The deficit seems to be an afterthought as lawmakers race toward agreement with President Bush on a plan to pump perhaps $150 billion worth of deficit spending into the economy. The bulk of the plan would come as tax cuts, though Democrats are pressing for additional help for the unemployed and people on food stamps. Constituency groups in both political parties are pressing for even more, such as Democratic-sought aid to cash-strapped states and people with high heating bills.

Most of any economic stimulus bill would be released before the Oct. 1 start of the 2009 budget year, with any benefits to the economy -- and therefore federal revenues -- lagging behind.

The White House is set to release its 2009 budget on Feb. 4, and Bush has promised a plan that would erase the deficit by 2012 if his policies are followed.

The 2006 deficit was $248 billion and had closed from a high of $413 billion registered in 2004.

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