Budget Blues: White House and CBO Release Summer Outlooks

Aug. 25, 2009 — -- The Obama administration predicted a dire future today for the 10-year federal budget deficit, but the White House projection came in about $2 trillion higher than a separate prediction released today by the nonpartisan Congressional Budget Office.

The White House's Office of Management and Budget this morning projected a staggering $9 trillion dollar deficit from 2010-2019, far higher than it has previously forecast.

The CBO painted a slightly more optimistic picture in its own summer update on the budget and the economy, projecting a $7.14 trillion 10-year budget deficit.

Today CBO director Douglas Elmendorf called the budget outlook "sobering."

Asked to explain why the CBO's deficit estimate is lower than the one released by the White House, he said the CBO is more restricted in how it makes projections because it can't assume any changes in current laws or policies, such as letting all of the 2001 Bush tax cuts expire next year or not adjusting the alternative minimum tax. Elmendorf said the White House Office of Management and Budget had more leeway in making its forecast.

The CBO's update said that, "over the long term (beyond the 10-year baseline projection period), the budget remains on an unsustainable path."

"Unless changes are made to current policies, the nation will face a growing demand for budgetary resources caused by rising health care costs and the aging of the population," it concluded.

The White House said its latest $9.051 trillion projection, far exceeding February's $7.1 trillion projection, is based on new data that reflects the severity of the 2008-2009 economic downturn.

Word had come last week that the numbers would be in a whole new ballpark from previous estimates.

For anticipated long-term struggles, the Obama administration points the finger at the Bush White House, saying the projected 10-year deficit would be $5 trillion smaller if the previous administration had done things differently.

"In other words, more than half of the projected deficits over the next 10 years are directly attributable to the previous Administration's failure to follow the pay-as-you-go principle," states a fact sheet from the Office of Management and Budget.

Elmendorf said a variety of factors could alter CBO's projection -- both positively and negatively.

"Some of the resulting assumptions may underestimate potential deficits," Elmendorf wrote on his blog. "Many other outcomes are possible."

Shorter-Term Budget Projections a Bit Rosier

Both the White House and the CBO agree the forecast is a bit brighter in the near term.

Today's CBO update said that since March, "CBO has reduced its estimate of the deficit for 2009 by $80 billion."

"The deficit has been boosted by various federal policies implemented in response, including the stimulus legislation and aid for the financial, housing, and automotive sectors," the CBO summary said.

The White House likewise highlighted the short-term success, noting that the size of this year's deficit has fallen by almost $262 billion -- now projected to be $1.58 trillion -- because less money than once anticipated has been needed to stabilize the financial system.

"These new numbers show how important it was to rescue the economy with aggressive action and invest in ways to get the economy moving again," the Office of Management and Budget's fact sheet states.

As for what's immediately ahead, OMB Director Peter Orszag said, "We are in the midst of the policy process surrounding the FY 2011 budget, and that process will include proposals to put the nation on a fiscally sustainable path."

Orszag would not comment on what those proposals would be or any details of the 2011 budget process.

Council of Economic Advisers Chair Christina Romer also said the administration predicts that unemployment numbers will peak in the fourth quarter of 2009 and the first quarter of 2010, hitting 10 percent in that time period. She said the annual average unemployment rate for 2009 will be 9.3 percent, and the 2010 average will be 9.8 percent.

High Percentage of GDP

The CBO estimates this year's federal budget deficit will be $1.6 trillion -- "which, at 11.2 percent of gross domestic product (GDP), will be the highest since World War II."

"Although various indicators suggest that the recession may have ended or is likely to end within the next few months, CBO's economic forecast anticipates a relatively slow and tentative recovery," CBO said.

Hiring and unemployment numbers, CBO added, tend to "lag behind" early signs of recovery.

Deficit Projections Come as Bernanke is Nominated for Second Term

The budget updates came on the same morning that President Obama nominated Fed Chairman Ben Bernanke to a second term, suggesting he can help the U.S. on the road to economic recovery.

"We are a long way away from a completely healthy financial system and a full economic recovery," Obama said this morning, speaking from his Martha's Vineyard vacation.

"That's why we need Ben Bernanke to continue the work he's doing, and that is why I've said that we cannot go back to an economy based on over-leveraged banks, inflated profits and maxed-out credit cards."

ABC News' Matthew Jaffe, Huma Khan and Dean Norland contributed to this report.