Timing could hurt health care plans
By Richard Wolf, USA TODAY
WASHINGTON — Stagnant unemployment, shrinking tax revenue and a struggling economy threaten to quadruple the size of last year's federal budget deficit, raising more questions about the timing of costly proposals to overhaul health care.
As the White House and Congressional Budget Office (CBO) prepare to release new deficit estimates this month, several economists say the news is likely to be as bad as or worse than forecasts.
"This is going to be a very depressing outlook," predicts former CBO director Douglas Holtz-Eakin, top adviser to Republican John McCain in last year's presidential election. "They have just a nightmare in terms of these health care bills, which do nothing but make things worse."
A fiscal year 2009 deficit of $1.8 trillion was anticipated by the White House, $1.7 trillion by Congress. Reaching that level would produce a deficit four times last year's $459 billion deficit, just as Congress is considering health care overhaul plans that could cost $1 trillion over 10 years.
Lawmakers are struggling to pay for a plan with a mix of tax increases on upper-income people and Medicare spending reductions aimed at doctors, hospitals, drugmakers and insurers. Some town-hall forums across the U.S. this month have been disrupted by protests for and against proposals.
While revenue continues to decline, government spending is rising as a result of the $787 billion economic stimulus plan passed six months ago. Stimulus spending will increase in the next few months, says Treasury chief economist Alan Krueger.
Deficits of $1.8 trillion this year and $1.3 trillion in 2010, as predicted by the White House, would add to the federal debt. The current $11.7 trillion debt already equals about $38,500 for every U.S. resident. The recession, now in its postwar-record 21st month, has dealt a worse blow to the budget than the administration expected:
• The economy is set to shrink by 2.6% this year, more than twice what the White House predicted in February and May.
• As a result, tax revenue is down by $353 billion over 10 months, which is about what the White House thought it would lose for the entire year.
• Unemployment, projected at 8.1% this year by the White House, was 9.4% in July. Spending for jobless benefits, Medicaid and Medicare has soared as people have lost work and health insurance. Jobless benefits are costing more than twice what was spent last year.
"The deficit picture is very challenging," White House budget director Peter Orszag wrote on his blog last month.
Sen. Judd Gregg, R-N.H., top Republican on the Senate Budget Committee, says having a deficit at "previously unthinkable levels … shows an incredible lack of fiscal responsibility."
Former CBO director Robert Reischauer, president of the non-partisan Urban Institute, an economics and social policy think tank, says administrations tend to believe that "the harder and faster one falls, the more rapid and steep the recovery."