WASHINGTON — Just weeks before the government's fiscal year ends Sept. 30, the nonpartisan Congressional Budget Office on Tuesday projected a near-record federal budget deficit of $407 billion, sharply higher than White House projections six weeks ago and more than double last year's figure.
Mammoth federal-budget deficits feed inflation, make America dependent on foreign lenders, cost taxpayers hundreds of billions of dollars in interest payments on the growing national debt and drain capital savings from more productive investments.
The widening gap between what the government spends and the revenue it brings in is sure to weigh on the next president and impede his efforts to spend on new or larger programs or to cut taxes.
Yet John McCain and Barack Obama show few signs that they're ready to take tough steps to curb deficits, according to budget analysts.
"I don't think either candidate is treating the deficit, or the debt, seriously. And I don't see any proposals from either one that would make the situation any better," said Robert Bixby, the executive director of the Concord Coalition, a bipartisan budget-watchdog organization.
Maya MacGuineas, the president of the bipartisan Center for a Responsible Federal Budget, said in a statement that both candidates "are promising hundreds of billions more in spending and tax cuts than they are paying for."
Republican nominee McCain has promised to balance the budget by 2013, but most analysts consider that goal elusive unless lawmakers make radical changes in Social Security, Medicare and Medicaid funding. McCain has made no such dramatic proposals.
Obama issued a statement Tuesday on the new data, promising that he'd "bring real change by cutting taxes for middle-class families and small businesses, paying for all his proposals to reduce the deficit" and working toward fiscal responsibility. He'd let tax cuts for the wealthiest earners expire and would impose higher taxes on certain corporations.
However, the Brookings Institution-Urban Institute Tax Policy Center has found that Obama's tax-reduction plan would increase the national debt by $3.5 trillion by 2018. McCain wants to leave existing tax cuts in place rather than let them expire, which the center said would add $5 trillion to the debt.
The CBO also offered a dismal forecast Tuesday, projecting a record deficit of $438 billion in the coming year due to the slowing economy, which would reduce tax receipts to the Treasury.
That fiscal 2009 deficit could rise another $83 billion if Congress, as expected, adjusts the alternative minimum tax. The deficit projection also doesn't include the potential costs to taxpayers from last weekend's seizure of mortgage-finance giants Fannie Mae and Freddie Mac. The CBO had estimated a takeover cost of $25 billion, although financial experts suggest that it could exceed $100 billion.
The CBO's latest estimate for fiscal 2008 is $18 billion higher than the Bush administration's projection six weeks ago. The record is $413 billion in fiscal 2004. Fiscal 2007's deficit was $161 billion.
"The significant expansion in the deficit is the result of a substantial increase in spending and a halt in the growth of tax revenues," the CBO said.
White House Press Secretary Dana Perino said that one big reason the deficit went up was the stimulus that President Bush signed into law in February. The CBO said that another large part of the deficit's unexpected growth came from rising unemployment-benefit payments and higher spending to cover insured deposits in insolvent financial institutions.
Another boost to the deficit came from Congress and Bush's appetite for discretionary spending, which is expected to rise by $85 billion, or 8.1 percent, in the current fiscal year, mostly because of higher defense costs.
The CBO projected that economic growth would slow to a 1.5 percent annual rate this calendar year and 1.1 percent next year. Even if the tax cuts of 2001 and 2003 expire as scheduled on Jan. 1, 2011, the deficit would be $325 billion the following year.
To bridge the gap between spending and tax revenues, the federal government borrows, increasing the national debt. It's grown from $5.7 trillion in 2000 to almost $9.7 trillion on Tuesday.
Analyst Bixby doubted that either presidential candidate's proposals would make a serious dent in the deficit and debt.
"Even if both of them can pay for their new initiatives and not make the situation any worse, the situation is unsustainable," he said. "Simply treading water is not good enough if you are headed over the falls."
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