Washington Just weeks before the government's fiscal year ends Sept. 30, the nonpartisan Congressional Budget Office on Tuesday projected a near-record federal budget deficit of $407 billion, sharply higher than White House projections six weeks ago and more than double last year's figure.
Mammoth federal-budget deficits feed inflation, make America dependent on foreign lenders, cost taxpayers hundreds of billions of dollars in interest payments on the growing national debt and drain capital savings from more productive investments.
The widening gap between what the government spends and the revenue it brings in is sure to weigh on the next president and impede his efforts to spend on new or larger programs or to cut taxes.
The CBO also offered a dismal forecast Tuesday, projecting a record deficit of $438 billion in the coming year due to the slowing economy, which would reduce tax receipts to the Treasury.
That fiscal 2009 deficit could rise another $83 billion if Congress, as expected, adjusts the alternative minimum tax. The deficit projection also doesn't include the potential costs to taxpayers from last weekend's seizure of mortgage-finance giants Fannie Mae and Freddie Mac. The CBO had estimated a takeover cost of $25 billion, although financial experts suggest that it could exceed $100 billion.
The CBO's latest estimate for fiscal 2008 is $18 billion higher than the Bush administration's projection six weeks ago. The record is $413 billion in fiscal 2004. Fiscal 2007's deficit was $161 billion.
"The significant expansion in the deficit is the result of a substantial increase in spending and a halt in the growth of tax revenues," the CBO said.