Capital Gold Group Report: U.S. Deficit to Reach Record $490 BILLION in 2009

By Roger Runningen

July 28 (Bloomberg) -- The U.S. budget deficit will widen to a record of about $490 billion next year, an administration official said, leaving a deep budget hole for the next president.

The projected deficit for the fiscal year that begins Oct. 1 is far higher than the $407 billion forecast by President George W. Bush in February. The official also confirmed a report in USA Today that the deficit this year will be less than the $410 billion estimated in February.

The bigger shortfall for fiscal 2009 may reflect dwindling tax receipts because of the U.S. economic slowdown, the cost of payments distributed under the $168 billion economic stimulus package and the cost of the wars in Iraq and Afghanistan.

``We've already seen a pretty sharp cooling in tax receipts, and it's just going to continue into next fiscal year,'' Stephen Stanley, chief economist at RBS Capital Markets, said in a telephone interview.

The deficit projection injects another element into the fight over future U.S. economic policy between Republican John McCain and Democrat Barack Obama, the presumptive presidential nominees of the major political parties. Both may find their economic proposals constricted by red ink when the next president is sworn in on Jan. 20, 2009.

Plans and Proposals

McCain will have a tougher case to make for extending all of Bush's tax cuts, which are projected to cost $4.2 trillion over 10 years, while Obama will confront the risk that his proposals for government programs will widen the budget gap.

White House press secretary Dana Perino refused to comment on the numbers, while adding that the administration said when the economic stimulus package passed in February that it might increase the deficit.

``That's the price we would pay'' for boosting the economy, she said at a briefing this morning. Asked if the administration still believes it's on a path to a balanced budget by 2012, she said, ``I believe so, yes.''

The White House budget office will release its mid-session review of the government's balance sheets at 1:30 p.m. today.

The shortfall reflects a deterioration of the budget over the past seven years. Bush inherited a budget surplus of $128 billion when he took office in 2001. The budget worsened almost immediately, because of recession, the Sept. 11 attacks, the beginning of the war in Afghanistan and, later, the war in Iraq that began in March 2003.

Deficit Record

Bush recorded his first deficit a year after being sworn in, and it widened to the current record of $413 billion in 2004.

Five months ago, the administration projected a shortfall of more than $400 billion this year and next, reflecting a struggling economy, and forecast a recovery to a $160 billion deficit in 2010, declining to $96 billion in 2011 and finally a $48 billion surplus in 2012.

The current projections may understate the deficit next year because the administration hasn't requested money to prosecute the wars for the full year, leaving that to the next president. Military operations in Iraq and Afghanistan now are costing about $10 billion to $12 billion a month.

The Bush administration and Congress also haven't dealt with the largest long-term fiscal problems: the growing costs of Medicare, Medicaid, and Social Security. Those three programs consumed an estimated 41 percent of the federal budget in 2007.

Economy Discussions

Obama was scheduled to confer today with his top economic advisers ``on America's pressing economic challenges,'' his campaign said. The Illinois senator was to meet with business and labor officials on oil, food and other commodities, topped with discussions with investor Warren Buffett, former Chairman of the Federal Reserve Paul Volcker, and former Treasury Secretary Robert Rubin, among others.

McCain, an Arizona senator, was scheduled to talk about the economy at town-hall meetings with voters in Nevada and Wisconsin.

Record gasoline prices, plunging home values and shrinking credit access have thrust the economy to center stage. The Labor Department this week may report a seventh straight month of job losses.

House Budget Committee Chairman John Spratt, Democrat of South Carolina, took the administration to task for a record deficit, citing news accounts.

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