Deficit to reach $1.8 trillion

DEFICIT TO REACH $1.8 TRILLION…. The news from the Congressional Budget Office is discouraging, but hardly surprising.

The worsening economy is responsible for the even deeper fiscal mess inherited by Obama. As an illustration, CBO says that the deficit for the current budget year, which began Oct. 1, will top $1.8 trillion, $93 billion more than foreseen by the White House.

The 2009 deficit, fueled by the $700 billion Wall Street bailout and diving tax revenues stemming from the worsening recession, is four times the previous $459 billion record set just last year.

The CBO’s estimate for 2010 is worse as well, with a deficit of almost $1.4 trillion expected under administration policies, about $200 billion more than predicted by Obama.

By the end of the decade, the deficit under Obama’s blueprint would go back up to $1.2 trillion.

Long-term deficit predictions have proven notoriously fickle — George W. Bush inherited flawed projections of a 10-year, $5.6 trillion surplus and instead produced record deficits — and if the economy outperforms CBO’s expectations, the deficits could prove significantly smaller.

And that last point is of particular interest. The AP report emphasizes deficit projections over the next 10 years, and refers to “dangerously high” budget shortfalls a decade from now. The same piece “throw a major monkey wrench into efforts to enact Obama’s budget.”

I was on a conference call with OMB Director Peter Orszag this afternoon, and he doesn’t see it that way. Orszag emphasized the “uncertainty” in long-term projections, and doesn’t believe there’s any reason to scale back on the budget blueprint currently before Congress. This is especially true, he said, of the health care reform efforts, which the administration believes can be budget neutral over the long term.

What’s more, the Washington Post‘s Steven Pearlstein responded to the CBO numbers by explaining that the projections confirm that “the recession is worse than they thought when they did these things last time,” and thus it is “more urgent … for us to spend more money to stimulate the economy.”