special arrangement with Informa Economics, Inc.
Impact: Lower entitlement spending ahead,
including farm program payment cuts
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or retransmission is prohibited under U.S. copyright laws.
The U.S. federal budget deficit for the
fiscal year ending September 30, (Fiscal Year 2008) was $454.8 billion,
sharply higher than the $161.5 billion deficit in FY07, and above the
Congressional Budget Office's Oct. 7 deficit projection of $438 billion.
Reasons for the higher deficit cited by the Treasury
Department included the slowing US economy's impact on individual and
corporate tax receipts, and the economic stimulus package enacted in
February, $116 billion of the which was added to the deficit. Total
spending in FY08 rose 9.1 percent to $2.98 trillion from a year earlier,
the biggest jump in annual outlays since a 9.6 percent gain in 1990.
Revenue decreased 1.2 percent to $2.52 trillion, the first decline since
For perspective, the FY08 deficit is a record in
dollar terms, eclipsing the previous high of $412 billion recorded in
FY04. Neither, however, is a record when measured against the size of
the economy (gross domestic product/GDP) – using that as a basis,
the post World War II era record occurred in 1983 when the deficit hit
6 percent of GDP. The FY08 deficit is 3.2 percent of GDP, up from 1.2
percent in FY07. Deficits during WW II reached as high as 30 percent.
Implications of the growing deficit are both short- and longer-term.
Presidential candidate Barack Obama (D-Ill.) has already indicated the
financial rescue package and growing deficit will impact the timing
of some new funding and other items he previously pledged to implement
on the campaign trail.
Looking ahead, the FY09 deficit could range between
$700 billion an $1 trillion, some analysts signal, considerably above
a July projection by the Bush administration of $482 billion. A $750
billion deficit in FY09 would equal around 5.5 percent of the GDP. Any
deficit nearing $1 trillion would have significant congressional implications,
especially likely cuts to entitlement programs, including farm program
“The reality is that the next president will be inheriting
a fiscal and economic mess of historic proportions –
the legacy of President Bush’s failed policies,” Senate
Budget Committee Chairman Kent Conrad (D-N.D.) said in a statement.
As noted, the FY09 deficit could approach $1 trillion, depending on
several factors. A number this high would be hard to ignore politically.
In July, before the recent financial crisis, the administration projected
a fiscal 2009 deficit of $482 billion. A portion of the recently enacted
financial sector rescue plan that allows the Treasury to buy $700 billion
worth of a variety of assets will show up in future deficit figures.
Treasury officials said they plan to use $250 billion of this authority
to buy equity in financial companies, including $125 billion in nine
of the largest banking institutions. Stephen McMillin, deputy director
of the Office of Management and Budget (OMB), said this cost would be
added directly to the deficit.
Also, Democratic leaders are pushing for another economic
stimulus package of up to $300 billion, which would also impact
future deficit projections if the package is implemented.
Comments: Well, the sins
of our government's spend-happy ways of the past are on us. And not even
the biggest liberal-spending lawmaker in next year's new Congress can
deny the fact that the word is now CUT and not SPEND. Some will still
try to add on to the monstrous deficit, but something has to be done to
throttle spending, and reduce the deficit. Yes, even some potential revenue
enhancers -- tax increases, or at the least, no extensions to some of
the expiring tax cuts.
President Bush came into office with a total U.S. federal debt
of around $5 trillion. He will leave office with the tally about double
that amount. And the Congressional Budget Office (CBO)
estimates that the total debt will rise to $13.5 trillion by 2013 --
even if the tax cuts are not extended. That would equate to around 75
percent of the nation's economic, or GDP, and a level not seen since
1951, when the nation was rebuilding and facing debt following World
And then there is the albatross of paying interest on all that
debt. For Fiscal Year 2008 alone, interest on the nation's
debt amounted to $441 billion! That is what the U.S. government spent
for nine agencies during FY 2008 -- for USDA, Energy Dept, Education
Dept, Health and Human Services, Interior, Homeland Security, Veterans
Affairs, the Justice Dept, and the EPA.
Congress and the new president will also eventually have to
deal with the $53 trillion in entitlement spending ahead for
the 78 million baby boomers via Social Security, Medicaid and
Medicare promises that just can't be made to the degree promised.
Bottom line: Belt
tightening is ahead. Count on it. Even Washington is starting to understand
the ugly math.
This column is copyrighted material, therefore reproduction or
retransmission is prohibited under U.S. copyright laws.