WASHINGTON — The national debt held by the public would double over the next decade if President Barack Obama's budget is enacted into law, the nonpartisan Congressional Budget Office projected Friday.
The U.S. government would run budget deficits approaching $1 trillion every year for a decade under Obama's budget, the CBO said.
Deficits and debt that big are unsustainable over the long term, economists agree. They'd threaten to send inflation spiraling upward, threaten the nation's creditworthiness and the value of the dollar — China's prime minister publicly voiced concern about the safety of U.S. debt last week — and force up interest rates, as investors come to see the United States as a risky, debt-ridden economy. They'd saddle future generations with a debt payable only by cutting federal spending or raising taxes sharply.
With the U.S. mired in what appears to be the worst economic downturn since the Great Depression, these deficit projections are likely to force Congress to rethink Obama's $3.55 trillion budget for fiscal 2010.
"The reality is we are going to have to make adjustments to the president's budget if we want to keep the deficit on a downward trajectory," said Senate Budget Committee Chairman Kent Conrad, D-N.D.
Debt held by the public would double to 82 percent of the gross domestic product by 2019 under Obama's budget, from 41 percent last year, CBO said. If current law remained unchanged, debt held by the public would rise to 56 percent of GDP in 2019, the CBO said.
Obama's budget would add $4.8 trillion to cumulative federal deficits over that decade, boosting their total from $4.4 trillion under current law to $9.3 trillion.
The deficit for the current fiscal year is projected to be $1.7 trillion now. It would be $1.8 trillion under Obama's budget, or 13.1 percent of GDP, and would be $1.4 trillion in fiscal 2010, or 9.6 percent of GDP, CBO said.
The highest previous post-World War II deficit was 6 percent of the GDP in 1983, and it was considered dangerously high. Ronald Reagan, a conservative Republican president, and a Democratic-majority Congress agreed to raise taxes and cut spending to reduce future deficits.
In remarks to state lawmakers gathered Friday morning at the White House, Obama vowed to cut the deficit in half by the end of his first term, but he defended his calls for massive investments in health care, clean energy and education.
"What we will not cut are investments that will lead to real growth and real prosperity over the long term. That's why our budget makes a historic commitment to comprehensive health-care reform. That's why it enhances America's competitiveness by reducing our dependence on foreign oil and building on a clean-energy economy. And that's why it makes a down payment on a complete and competitive education for every child in America," Obama said.
In a conference call after the CBO report's release, however, White House budget director Peter Orszag already was lowering expectations.
"We recognize that the budget resolution will be written off of the CBO numbers," he said, adding that "no one ever had an expectation that they would just take our budget, Xerox it and vote on it."
Conrad has acknowledged that Congress will have to revise Obama's budget.
"Under any scenario, we are on an absolutely unsustainable long-term path and we need entitlement reform, tax reform," he said Thursday. Conrad is expected to propose a five-year budget that would reduce the deficit by two-thirds by 2014.
Republicans, who ran up their own record deficits earlier in the decade, said that the CBO report envisioned a new era of big government under Obama's plan.
"This report should serve as the wake-up call this administration needs. We simply cannot continue to mortgage our children and grandchildren's future to pay for bigger and more costly government," said Rep. John Boehner of Ohio, the Republican leader in the House of Representatives.
One major factor driving deficits in the later years is Obama's decision to maintain many of the Bush-era tax cuts. Obama would leave these tax reductions in place for 95 percent of taxpayers, all but the wealthiest.
"This isn't something that President Obama is stuck with; it's something President Obama has to sign into law. It has to be Obama tax policy," said Diane Lim Rogers, the chief economist for the Concord Coalition, a nonpartisan budget watchdog group. "They're now Obama policy."
Leaving Bush-era tax cuts in place for all but the top 5 percent of taxpayers would cost the Treasury $2 trillion over 10 years, she said.
The cost of paying interest on the swelling national debt, much of it held by foreign central banks, also drives up the debt by about $1.3 trillion over 10 years. That's almost twice as much as the $700 billion Wall Street rescue package, which passed last year amid great controversy.
Congressional committees will begin writing their own versions of the budget next week. Moderate Democrats already are uniting to promote budget discipline in what could become a challenge to Obama's agenda. Sixteen Democrats, led by Indiana Sen. Evan Bayh, have formed the "Moderate Dems Working Group," and have begun meeting to discuss how to pare spending.
"There are a lot of like-minded Democrats concerned about spending in the budget. We're not anti-administration, but we want everyone to recognize some of us are fiscally conservative," said Sen. Ben Nelson, D-Neb.
In the House, the Blue Dog Coalition, a group of 47 centrist Democrats, drew up a set of "principles" this week to guide the budget, emphasizing a need to reduce spending. Its biggest push is to hold nondefense discretionary spending, which Obama would increase by about 14 percent next year, to the level of inflation. Over the past 12 months, consumer prices are up about 0.2 percent, according to the Bureau of Labor Statistics.
Younger moderates bring a generational perspective.
"I am one of the few (lawmakers) who may actually have to end up paying for the deficits we're currently running up," said Rep. Tom Perriello, D-Va., a 34-year-old freshman.
(Margaret Talev contributed to this report.)
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