US budget deficit to jump to $9 trillion, Obama promises to cut it half

According to Reuters, president Barack Obama's domestic policy proposals will face the reality of skyrocketing deficits on Tuesday when the White House budget office and the Congressional Budget Office release updated economic forecasts and deficit estimates, providing further fiscal fodder to opponents of Obama's nearly $1 trillion healthcare overhaul plan.

The White House has confirmed that its deficit estimate for the 2009 fiscal year, which ends September 30, will inch down to $1.58 trillion from $1.84 trillion after eliminating billions of dollars originally set aside for bank rescues. Looking forward, Chuck Marr, director of federal tax policy at the Washington-based Center on Budget and Policy Priorities, told Reuters the 10-year budget deficit projection will jump by about $2 trillion to roughly $9 trillion from an original forecast of $7.1 trillion. "One message the numbers will send is that the medium- and long-term deficits need to be addressed," he said.

The president Obama, a Democrat, says he will cut the deficit in half by the end of his four-year term, and he sees lowering healthcare costs as a key ingredient toward achieving long-term deficit reduction. But Republicans charge that his proposals to extend coverage to uninsured Americans and create competition for private insurance providers are too expensive, especially as deficits go up.

The CBO had previously forecast that deficits between 2010 and 2019 would total $9.1 trillion, generating heat for the White House, which stuck to its original $7.1 trillion forecast earlier this year. The new number will bring White House projections into line with the CBO, sad Rudolph Penner, a fellow at the Urban Institute and former CBO director from 1983-1987. "We're still on a long-run trajectory that's not sustainable," said Penner, who describes himself as a moderate Republican. "In an ideal world they would be doing a lot more to get health costs under control and, in my view, we wouldn't be talking about expanding coverage right now."

In line or not, the political challenges of the updated deficit projections are numerous. With Congressional elections looming next year, Obama will need to show he is serious about cutting costs in order to neutralize an otherwise politically radioactive issue for both political parties. Many economists think it is unlikely that the government can curtail spending, which means taxes would have to rise to cover the increasing costs of providing retirement benefits and healthcare to older people. That could slow economic growth. Additionally, Stanford University economics professor John Taylor, an influential economist, told Reuters Television on Friday the U.S. budget deficit poses a greater risk to the financial system than the collapse in commercial real estate prices.