U.S. deficit at record high and rising
The federal deficit hit $311 billion for the first half of fiscal year 2008, up from $162 billion the year before.
Deficit? What deficit? Three big intersecting events – war in Iraq, the economic downturn, and the presidential race – this year have combined to knock fiscal discipline far down the list of Washington's policy priorities.Skip to next paragraph
Subscribe Today to the Monitor
In fact, the federal deficit hit an all-time high of $311 billion for the first half of this budget year, reports the Treasury Department. And Congress is discussing further moves to help distressed homeowners and stimulate the economy. Iraq and Afghanistan will cost at least another $170 billion in supplemental funds through the end of next year.
Given the need, the current rush of spending might be understandable, say some deficit hawks. But they worry that Washington will use recession and war as excuses to stop caring about red ink altogether. They also warn that current deficits leave Washington ill-prepared to face an imminent explosion of spending on Social Security and Medicare caused by retiring baby boomers.
"I've spent a professional lifetime worrying about the federal budget and fiscal responsibility. And I've never been more worried than now," said Alice Rivlin, former director of the Congressional Budget Office, at a recent Brookings Institution symposium in Washington.
This February, in the president's annual budget submission to Congress, the White House Office of Management and Budget (OMB) predicted the federal deficit for fiscal year 2008 would come in at $410 billion.
That figure would represent a big jump from the fiscal 2007 deficit of $162 billion, admitted the White House. But, measured as a percentage of the nation's gross domestic product, $410 billion in red ink is well within recent historical norms, according to administration budget documents. Moreover, the "primary" reasons for the rise would be short term: the cost of the stimulus bill and a slowdown in tax receipts caused by the softening economy.
Fast-forward to April. Treasury figures now show that the deficit is likely to be larger than OMB had anticipated, since it was $311 billion through the first half of the fiscal year alone.
Why the extra red ink? The economy has been even worse than the White House predicted – and Congress increased the size of the stimulus package beyond what the administration wanted.
A 300 percent increase
Tax receipts generally pick up in the summer, so the deficit is unlikely to surpass $600 billion. But $450 billion, or even $500 billion is possible.
"There is no fiscal discipline this year, and they have an excuse to not have any: the economy," says Stan Collender, managing director of Qorvis Communications and a veteran federal budget expert. "The deficit is going to increase close to 300 percent, and nobody is saying anything."