CBO sees rising budget deficit as economy weakens

WASHINGTON — The deficit for the current budget year will jump to about $250 billion, the Congressional Budget Office estimated Wednesday, citing the weakening economy. And that figure does not reflect at least $100 billion in additional red ink from an upcoming deficit-financed economic stimulus measure.

The nonpartisan CBO says that once the cost of wars is added to its "baseline" deficit estimate of $219 billion, the deficit would be about $250 billion.

"After three years of declining budget deficits, a slowing economy this year will contribute to an increase in the deficit," the CBO report said.

Such a figure greatly exceeds the $163 billion in red ink registered last year. Including likely but still unapproved outlays for the wars in Iraq and Afghanistan, the deficit for 2008 would total about $250 billion, CBO said.

Senate Budget Committee Chairman Kent Conrad, D-N.D., said the 2008 deficit would reach more than $350 billion once the costs of an upcoming economic stimulus measure under negotiation between the Bush administration and Congress are factored in.

The CBO crunches economic and budget data for lawmakers.

Unlike an increasing number of economists, CBO does not forecast a recession this year. It instead forecasts a growth rate of 1.7 percent, down from 2.2 percent real growth in the gross domestic product (GDP) last year.

"Although recent data suggest that the probability of a recession in 2008 has increased, CBO does not expect the slowdown in economic growth to be large enough to register as a recession," CBO said. The CBO economic forecast was completed last month, before a recent spike in unemployment and the release of disappointing holiday retail sales figures.

"A number of ominous economic signs have emerged since CBO finalized last month the forecast underlying today's report," said House Budget Committee Chairman John Spratt Jr., D-S.C. "Today's new economic forecast thus adds to the growing evidence that the economy has weakened, and that policymakers in Washington must take action."

CBO Director Peter Orszag was scheduled to testify before the House Budget Committee.

Officially, CBO predicts the 2008 deficit at $219 billion, but that figure fails to account for at least an additional $30 billion in war costs and the likely infusion of deficit-financed economic stimulus measures such as income tax rebates, business tax breaks and help for the unemployed now under discussion on Capitol Hill and at the White House.