President Barack Obama's budget would produce $9.3 trillion in deficits over the next decade, an eye-popping figure that threatens his ambitious goals to overhaul health care and explore new energy sources, congressional auditors said.
The new Congressional Budget Office figures that emerged Friday offered a far more dire outlook for Obama's budget than the new administration predicted just last month — a deficit $2.3 trillion worse. It's a prospect even the president's own budget director called unsustainable.
In his White House run, Obama assailed the economic policies of his predecessor, President George W. Bush. But the dismal deficit figures, if they prove to be accurate, would amount to more than four times the deficits of Bush's presidency and raise the prospect that Obama and his Democratic allies controlling Congress would have to consider raising taxes after the recession ends.
By the auditors' calculation, Obama's budget would generate deficits averaging almost $1 trillion a year of red ink over 2010-2019.
Worst of all, the budget office says the deficit under Obama's policies would never go below 4 percent of the size of the economy, figures that economists agree are unsustainable. By the end of the decade, the deficit would exceed 5 percent of gross domestic product, a dangerously high level.
White House budget chief Peter Orszag said that CBO's long-range economic projections are more pessimistic than those of the White House, private economists and the Federal Reserve, and that he remained confident that Obama's budget, if enacted, would produce smaller deficits.
Even so, Orszag acknowledged that if the CBO projections prove accurate, Obama's budget would produce deficits that could not be sustained.
"Deficits in the, let's say, 5 percent of GDP range would lead to rising debt-to-GDP ratios that would ultimately not be sustainable," Orszag told reporters.
Deficits so big put upward pressure on interest rates as the government offers more attractive interest rates to attract borrowers.
"I think deficits of 5 percent (of GDP) are unsupportable," said economist Mark Zandi, chief economist at Moody's Economy.com. "It will lead to higher interest rates to the point where it will force policymakers to make changes."
Opposition Republicans were quick to respond.
"This report should serve as the wake-up call this administration needs," said House Minority Leader John Boehner. "We simply cannot continue to mortgage our children and grandchildren's future to pay for bigger and more costly government."
But Obama insisted on Friday that his agenda is still on track.
"What we will not cut are investments that will lead to real growth and prosperity over the long term," Obama said. "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 a clean energy economy."
Obama's $3.6 trillion budget for the 2010 fiscal year beginning Oct. 1 contains ambitious programs to overhaul the U.S. health care system and initiate new "cap-and-trade" rules to combat global warming.
Both initiatives involve raising federal revenues sharply higher, but those dollars wouldn't be used to defray the burgeoning deficit and would instead help pay for Obama's health plan and implement Obama's $400 tax credit for most workers and $800 for couples.
Obama's budget promises to cut the deficit to $533 billion in five years. The budget office says the red ink for that year will total $672 billion.
The worsening economy is responsible for the even deeper fiscal mess inherited by Obama. As an illustration, the budget office says the deficit for the current budget year, which began Oct. 1, will top $1.8 trillion, $93 billion more than foreseen by the White House. That would equal 13 percent of GDP, a level not seen since World War II.
The 2009 deficit, fueled by the $700 billion Wall Street bailout and diving tax revenues stemming from the worsening recession, is four times the previous $459 billion record set just last year.
The CBO's estimate for 2010 is worse as well, with a deficit of almost $1.4 trillion expected under administration policies, about $200 billion more than predicted by Obama.
Long-term deficit predictions have proven notoriously fickle — George W. Bush inherited flawed projections of a 10-year, $5.6 trillion surplus and instead produced record deficits — and if the economy outperforms CBO's expectations, the deficits could prove significantly smaller.
Republicans say Obama's budget plan taxes, spends and borrows too much, and they've been sharply critical of his $787 billion economic stimulus measure and a just-passed $410 billion omnibus spending bill that awarded big increases to domestic agency budgets.
The administration says it inherited deficits totaling $9 trillion over the next decade and that its budget plan cuts $2 trillion from those deficits. But most of those spending reductions come from reducing costs for the war in Iraq.