US faces record budget deficit

Al Jazeera, July 29, 2008

Costly wars in Iraq and Afghanistan have sapped the US budget [AFP] The US government's budget deficit is expected to soar to a record $482 billion in the next fiscal year, the White House budget office has said. The Office of Management and Budget said on Monday it blamed the "recent economic slowdown" for the record figure. The budget deficit measures the gap between how much the government spends and what it raises through taxes. Analysts say the news means the next US president may be urged to work on slashing the deficit instead of adding to it with expensive spending programmes such as those promised by both candidates. Democrat anger The White House had initially projected a deficit of $410 billion in the 2009 fiscal year, which begins October 1. However the office also predicted that the US economy would grow at a rate of 1.6 per cent this year and rebound further at 2.9 per cent rate next year. The White House said its projections showed a resilient economy with controlled inflation, and said that if food and energy prices stabilise "as expected" the inflation rate should fall. However Democrats have criticised the Bush administration for squandering budget surpluses and nearly doubling the national debt, from $5.6 trillion when Bush took office in 2001, to more than $9.5 trillion at present. Toll of war Gerald Friedman, a professor of economics at the University of Massachussetts Amherst told Al Jazeera the government had underestimated the size of the deficit. "The problem is that the Bush administration spends money like a drunken sailor rather than investing wisely in schools and infrastructure." Gerald Friedman, professor of economics. "They are not indicating all the costs of the wars in Iraq and Afghanistan despite a mandate from congress to do that. They are only including the first nine months of the fiscal year. "They are also projecting that the economy will recover faster than most economists think. We'll probably be looking at a deficit of around $600 billion by now. "The problem is that the Bush administration spends money like a drunken sailor rather than investing wisely in schools and infrastructure." The budget has been sapped by wars in Iraq and Afghanistan that came as Bush's tax cuts went into effect. Analysts have also said that health care and pensions spending will rise as the US's so-called "baby boom" generation, born after World War II, ages. US economic growth has been hit hard by the current slump in the housing market, a global credit crunch and record world oil prices. Dana Perino said earlier on Monday that a higher was "the price that we pay in order to help improve the economy". She said the administration still stood by its goal of achieving a balanced budget by 2012. "We hope to pull out of this economic downturn over the next few months because of the stimulus package," she said.