Blues growing over U.S. red ink

WASHINGTON — The federal government will run a near-record deficit of $407 billion this year, according to the latest Capitol Hill estimates.

The Congressional Budget Office released figures Tuesday that indicate the red ink will spill over into next year, when the deficit would reach a record $438 billion — and could go even higher as the government takes over mortgage giants Fannie Mae and Freddie Mac.

The worsening deficit is largely due to continuing weakness in the economy, high energy and food prices and the slump in the housing and financial markets, the CBO said. And the economy could still slide into a recession, according to the forecast.

"The economy is likely to experience at least several more months of very slow growth," the new report said. "Whether this period will ultimately be designated a recession or not is still uncertain, but the increase in the unemployment rate and the pace of economic growth are similar to conditions during previous periods of mild recession."

The CBO predicts that the economy will grow 1.5 percent this year in real terms and slip to just 1.1 percent growth in 2009.

The nonpartisan agency, which makes economic and budget estimates for Congress, also sees unemployment averaging 6.2 percent next year.

The CBO figures for this fiscal year, which ends Sept. 30, are slightly worse than the White House predictions released in July. The White House foresees a $389 billion deficit for 2008, growing to $482 billion in 2009.

If Congress fixes the alternative minimum tax, or AMT, next year's deficit could rise another $60 billion or so.

And Democratic efforts to pass a second economic stimulus bill to follow the tax rebate checks sent out earlier this year would add another $50 billion or so to next year's deficit. The White House and congressional Republicans are resisting the move and instead want Congress to pass other pieces of legislation, such as free trade agreements with Panama, Colombia and South Korea, to help the economy.

"We're not talking about a stimulus package," White House Press Secretary Dana Perino told reporters.

The new $400 billion-plus deficit numbers represent about 3 percent of the economy, which is the deficit measure seen as most relevant by economists. That's considerably smaller than the deficits of the 1980s and early 1990s, when Congress and earlier administrations cobbled together politically painful deficit-reduction packages.