Budget office projects record $438 billion deficit

The fiscal 2009 federal budget deficit is expected to total a record $438 billion and could surge even higher because of the recent federal takeover of mortgage titans Fannie Mae and Freddie Mac, according to the Congressional Budget Office.

At a news conference Tuesday on the agency's economic report, CBO Director Peter Orszag said "it is CBO's view that the operations of Fannie Mae and Freddie Mac should be directly incorporated into the federal budget" now that the government has taken over the two.

He added the new accounting will be reflected in the baseline CBO will release in January, but stressed it remains unclear how that will affect the deficit.

The CBO will be working closely with the House and Senate Budget committees and the Office of Management and Budget "to evaluate many thorny technical issues, for example, how credit transactions are reflected in the federal budget," according to Orszag.

The CBO report said the estimated deficit, which would total 3 percent of the gross domestic product, would be well above the record $413 billion deficit recorded for fiscal 2004. The figure is less than the $482 billion fiscal 2009 deficit projected by OMB in August. For fiscal 2008, which ends Sept. 30, CBO estimated a $407 billion deficit, which would amount to 2.9 percent of GDP.

OMB Director James Nussle said while CBO's "estimates are on track with our projections for fiscal 2008, the policy assumptions to extend the war and emergency supplementals, and ignore the president's tax relief, are unrealistic."

In response to the CBO report, Senate Budget Chairman Kent Conrad, D-N.D., blamed Bush and his economic policies for the increase in the deficit.

"No one has forgotten that Republicans have been in the White House for the last 7 1/2 years," Conrad said at a news conference. "No one has forgotten that it was Republicans who wiped out the surplus and plunged us into this hole with huge tax cuts for the wealthiest and hundreds of billions of dollars spent in Iraq."

Conrad added that another economic stimulus package may be needed "to avert an even sharper downturn." Congress passed the first package in February.

A second stimulus package could face White House opposition, however, as President Bush has said he wants to see the full effect of the first package as it plays out. White House Press Secretary Dana Perino said Tuesday Congress could stimulate the economy by passing free trade deals with Colombia, Panama and South Korea as well as energy legislation.

In a separate news conference, Senate Budget ranking member Judd Gregg, R-N.H., and House Budget ranking member Paul Ryan, R-Wis., argued that keeping taxes low is the best way to spur economic growth and reduce the deficit -- a strategy that Democrats, who have controlled Congress for almost two years, have not employed.

"Raising taxes on entrepreneurs, on small businesses, on companies and making us less competitive in a global economy is going to reduce the growth rate," Ryan said.