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Budget Deficit Jumps 153 Percent

Published 09/10/08 Dustin Ensinger - Print Article
E-mail - editor@economyincisis.org

This year’s budget deficit will jump 153 percent from last year’s $161 billion shortfall, according to a report released yesterday by the Congressional Budget Office. The $246 billion increase will push this year’s deficit to a total of $407 billion. That number does not reflect the recent government takeover of mortgage giants Fannie Mae and Freddie Mac, which will become incorporated into the federal budget in January.

The colossal jump in the budget deficit is being driven by a substantial increase in spending and a halt in the growth of tax revenues, according to the CBO.

Much of the increased spending can be attributed to the government covering insured deposits of insolvent financial institutions. Already this year 11 banks have been seized by the FDIC, and that number is expected to grow in the coming months. The $168 billion stimulus package approved by the government in February was also an unexpected expenditure, and Congress once again approved increased spending in Iraq and Afghanistan. Overall, federal spending has increased 8 percent over the previous year.

Tax cuts furthered a swollen debt. This year the government witnessed a 15 percent decline in corporate tax receipts, and The Bush administration’s 2001 and 2003 tax cuts contributed to the shortfall as well. The CBO previously predicted that the government would run a $300 billion surplus by 2018. After revising its estimates, the CBO now predicts a $7 trillion deficit by 2018 if those taxes are to be extended.

Furthermore, The CBO reported that it expects the deficit to exceed $400 billion in the next two years if the current policies remain in place. The estimate for the cumulative deficit over the next 10 years now sits at $2.3 trillion.

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said that the CBO's report confirmed that "the federal debt will grow at an unsustainable rate, which means more borrowing from China, more borrowing from Japan, and more borrowing from oil exporters like Saudi Arabia.”

Source CNNMoney.com:

The budget deficit will jump by $246 billion to $407 billion this year, the Congressional Budget Office estimates in a report released Tuesday.

"Over the long run, growing budget deficits and the resulting increases in federal debt would lead to slower economic growth," the agency said.

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