$1.4 Trillion Deficit Complicates Stimulus Plans

New York Times
By JACKIE CALMES
Published: October 16, 2009


WASHINGTON — The Obama administration said Friday that the federal budget deficit for the fiscal year that just ended was $1.4 trillion, nearly a trillion dollars greater than the year before and the largest shortfall relative to the size of the economy since 1945.
The number, while lower than forecast a few months ago, underscored the challenges ahead in shrinking the deficit even as the White House and Congress are considering more steps to stimulate an economy that is making a slow recovery. The political hurdles to finding a solution were evident on Friday as each political party immediately blamed the other for the growth of the deficit.
The shortfall for the fiscal year 2009, which ended Sept. 30, translates to 10 percent of the economy, according to a joint statement from the Treasury secretary, Timothy F. Geithner, and the director of the Office of Management and Budget, Peter R. Orszag. For the 2008 fiscal year, the deficit of $459 billion was 3.2 percent of the economy, as measured by the gross domestic product.
Economists generally agree that annual deficits should not exceed 3 percent of the G.D.P., and that is the level President Obama had vowed to reach by the end of his first term in 2013.
But subsequent spending and tax cuts to stimulate the economy, and lower-than-expected revenues as the recession deepened before bottoming out, combined to push the administration’s deficit forecast to 4.6 percent of G.D.P. for the fiscal year 2013.
At 10 percent of the gross domestic product, the 2009 deficit is the highest since the end of World War II, when it was 21.5 percent. At that level, it already has become a bigger economic and a political issue than any time since the late 1980s.
Investors who are essential to financing the debt, including China and other foreign interests, are eager for signs that the government will eventually regain control over its budgets.
And polls show that Americans are increasingly worried as well, raising concerns about Mr. Obama’s ambitious domestic agenda, including his signature health care overhaul, that Republicans are stoking. At the same time, many Americans are demanding further help, confronting forecasts that job losses will not peak until mid-2010.
Mr. Orszag alluded to the administration’s fiscal quandary in a statement on Friday. “As we move from rescue to recovery, the president recognizes that we need to put the nation back on a fiscally sustainable path,” he said. He said proposals to help do that would be part of Mr. Obama’s next budget early next year, for fiscal 2011.