Budget deficit for 2009: $482 billion

WASHINGTON - The U.S. budget deficit will surge past a half-trillion dollars next year, according to gloomy new estimates. The record flood of red ink promises to force the winner of the presidential race to dramatically alter his economic agenda.

The deficit will hit $482 billion in the 2009 budget year that will be inherited by Democrat Barack Obama or Republican John McCain, the White House estimated yesterday. That figure is sure to rise after adding the Iraq war spending (about $80 billion) that it doesn't include, and the total could be higher yet if the economy fails to recover as the administration predicts.

The result: the biggest deficit ever in dollars, though several were higher in the 1980s and early 1990s as a percentage of the overall economy.

Neither campaign is backing off promises - McCain to cut taxes and Obama to expand health and education programs - in light of bleaker new figures. But Democrats controlling Congress suggest that will have to change once President Bush's successor takes office.

"Whoever becomes the next president will have a very, very sobering first week in office," said Senate Budget Committee Chairman Kent Conrad (D., N.D.).

McCain proposes renewing the full roster of Bush tax cuts enacted in 2001 and 2003 and adding more for businesses and upper-income people who pay the alternative minimum tax. The Bush tax cuts expire at the end of 2010, and renewing them would soon cost well more than $200 billion a year. Eliminating the alternative minimum at the same time would cost almost as much.

Obama proposes repealing tax cuts on wealthier taxpayers and investors, but would leave most of the Bush tax cuts in place while seeking additional cuts for senior citizens, the middle class, and the working poor. And he also proposes new spending for health care, education, and other federal programs.

"There's a total disconnect between today's report and what we're hearing on the campaign trail," said Robert Bixby of the Concord Coalition budget watchdog group.

The deficit confronting the next president is reminiscent of what President Bill Clinton faced in 1993. Under Wall Street pressure, Clinton abandoned promises of tax cuts and pushed a tax-heavy deficit-reduction plan through a Democratic Congress.

The Bush administration said the deficit was being driven to an all-time high by the sagging economy and the stimulus payments being made to 130 million households in an effort to keep the country from falling into a deep recession. The numbers could go even higher if the economy performs worse than the White House predicts.

The budget office predicts the economy will grow at a rate of 1.6 percent this year and rebound to a 2.2 percent growth rate next year. That's a half-point higher than predicted by the widely cited "blue chip" consensus of business economists. The administration also sees inflation averaging 3.8 percent this year but easing to 2.3 percent next year - better than the 3 percent seen by the blue-chip panel.

"The nation's economy has continued to expand and remains fundamentally resilient," according to the budget office report.

A $482 billion deficit would easily surpass the record deficit of $413 billion set in 2004. The White House in February had forecast that the deficit next year would be $407 billion.

The deficit numbers for 2008 and 2009 represent about 3 percent of the size of the economy, which is the measure seen as most relevant by economists. By that measure, the 2008 and 2009 deficits would be smaller than the deficits of the 1980s and early 1990s that led Congress and earlier administrations to cobble politically painful deficit-reduction packages.

Still, the new figures are so eye-popping in dollar terms that they could restrain the next president's appetite to increase the deficit with spending on programs or offering new tax cuts. Pressure might build to allow some tax cuts enacted in 2001 and 2003 to expire as scheduled.

On a slightly brighter note, the deficit for the 2008 budget year ending Sept. 30 will drop from an earlier projection of $410 billion to $389 billion, according to the budget report.

House Budget Committee Chairman John Spratt (D., S.C.) said the new deficit estimate confirmed "the dismal legacy of the Bush administration: Under its policies, the largest surpluses in history have been converted into the largest deficits in history."