WASHINGTON A stabilizing U.S. financial sector may have freed the White House to trim its 2009 budget deficit projection but the still-record-breaking figure will not make it easier to sell healthcare reform.
President Barack Obama's administration will lower its budget deficit forecast next week for the current fiscal year to $1.58 trillion from $1.84 trillion after removing $250 billion set aside for bank bailouts, officials said.
The decision shows the administration has enough confidence in the financial sector's strength to forego an option to ask the U.S. Congress for further rescue funds.
But the lower figure's release, which comes at a convenient time for Obama as he tries to overcome critics' concerns about a nearly $1 trillion overhaul of the healthcare system, does not change a key problem: it is still in the trillions of dollars.
"The size of the deficit remains large and most Americans will see it that way," said Julian Zelizer, a history professor at Princeton University.
"In this case, the devil is not in the details but rather it is in the trillion dollar figure."
In May, the White House pushed up its budget deficit estimates for the fiscal year ending September 30 to $1.84 trillion -- representing a huge 12.9 percent of gross domestic product.
The latest number, which represents 11.2 percent of GDP, still marks the highest deficit as a percentage of GDP since 1945.
Obama, a Democrat, has pledged to halve the deficit by the end of his four-year term and is eager to remind constituents that he inherited a $1.3 trillion budget hole from his Republican predecessor, George W. Bush.
Audiences at town hall-style meetings often boo when Obama emphasizes that fact and critics have gained traction by arguing that expensive plans to revamp healthcare, improve education and alter U.S. energy usage do not mix well with budget shortfalls.
An improving economy may offset some of those worries, and Obama officials are likely to paint the removal of the bank rescue provisions as more evidence that things are headed in the right direction.
Nigel Gault, chief U.S. economist at the analysis and consulting firm IHS Global Insight, said the new estimates reflected positive economic progress, but the deficit remained a looming problem.
"It's good news in the sense that it reflects a stabilizing economy and less troubled financial markets," Gault said of the latest projections.
"But the long-term issue remains: Can the administration implement a successful 'exit strategy' from huge deficits, especially after adding in the costs of healthcare reform?"
That question is on the minds of many Americans, who polls show are worried that higher taxes will ensue if the budget deficit does not fall.
Meanwhile, progress or not, the U.S. economy still has a far way to go before it can be described as healthy again, and that process could alter budget plans going forward.
"The biggest driver in a budget right now is the state of the economy," White House spokesman Robert Gibbs said earlier this week. "I don't think there's any doubt the challenges remain to get our fiscal house in order."
(Editing by Bill Trott)