WASHINGTON — President Barack Obama’s budget office forecast this year’s federal deficit will be a record $1.47 trillion, about $84 billion less than forecast in February because of lower spending for unemployment and some government programs.
The administration predicted in its mid-session review that the deficit for the 2011 spending year, which begins Oct. 1, will be $1.42 trillion, $150 billion more than estimated at the beginning of this year, mostly because of lagging tax receipts.
The U.S. economy is projected to grow 3.2 percent this year, compared with 2.7 percent forecast in February, 3.6 percent next year and 4.2 percent in 2012.
The administration cut its outlook for the unemployment rate, projecting an average of 9.7 percent this year and 9 percent next year. Still, the jobless rate isn’t projected to fall below 6 percent until 2015.
“As the economy expands, the unemployment rate is expected to fall gradually to more normal levels, but the collapse of the housing bubble and the subsequent financialcrisis have taken a significant toll on the economy, and many of the after-effects are likely to be felt for years to come,” according to the report released Friday by the Office of Management and Budget.
The annual report, required by law, is coming out less than four months before the midterm elections that will decide control of Congress. Republicans, seeking to overturn Democratic majorities in the House and Senate, say they will make government spending and debt a top issue in the campaign.
Even as the economy returns to growth, the Office of Management and Budget projects tax receipts will be lower over the next decade than originally forecast in February.
The revised numbers reflect “the slow pace of the economic recovery,” said David Primo, a political scientist who tracks budgets and politics at the University of Rochester. “This spells trouble for Obama’s goal to cut the deficit in half by the end of his first term.”
The White House report says the projections show the budget is “still on track” to meet the president’s goal, going from 9.2 percent of gross domestic product when Obama took office in January 2009 to 4.3 percent of GDP for fiscal 2013.
Even with the revision, the deficit this year would be the largest ever, reflecting lost tax revenue combined with spending to help pull the economy out from the worst recession since the 1930s. Last year the deficit was $1.41 trillion.
The most costly programs included the $862 billion stimulus, spending from a $700 billion financial bailout fund and billions more to fund safety-net programs, such as unemployment insurance or food stamps.
Sen. Kent Conrad of North Dakota, the Democratic chairman of the budget committee, said “the real challenge” facing the government is dealing with long-term debt.
“What we should be doing now is putting in place deficit reduction policies that will kick in after the economy has more fully recovered,” Conrad, a member of the president’sdeficit commission, said in a statement. “If we fail to act, we could see deficits return to current levels or worse, and continue unabated into the future.”
Obama created the 18-member deficit commission to recommend by December, after the midterm elections, ways to curb deficits to about 3 percent of the GDP by 2015, a level most economists say is sustainable.
The report cites signs indicating continued economic growth, including expanded consumer and business spending. “The U.S. economy still faces strong headwinds,” the document says, citing continued restrictions in the credit markets, an “overhang” of unsold houses and constrained state government budgets.
Another impediment is the European debt crisis, which is putting the continent’s recovery at risk, the budget office says. “The European Union has acted forcefully, however, to confront these issues,” it says.
The revised figures show the U.S. expanding 3.6 percent next year, down from 3.8 percent forecast in February.
“The economy is going to be stronger, the demand for social programs will be fading a bit,” as stimulus spending tapers off, said Gus Faucher, an economist at Moody’s Analytics Inc. in New York, before the report’s release.
“The problem is, we have these structural deficits over the longer term, and without big changes to taxes and spending, that presents a problem to longer-run economic growth,” Faucher said.
The new budget forecast sees inflation under control, rising 1.6 percent this year, against a 1.9 percent increase forecast in February. Prices may rise 1.3 percent next year, compared with 1.5 percent forecast when the budget was issued in February.
The review is one of the last major actions by budget director Peter Orszag, who leaves his post this month. Obama has nominated Jack Lew, a former budget chief under President Bill Clinton, to succeed him as director of the Office of Management and Budget.
Information for this article was contributed by Kristy Scheuble of Bloomberg News.
Front Section, Pages 1 on 07/24/2010