July 20, 2009 / 9:51 PM / 8 years ago

UPDATE 1-As economy bites, White House delays budget review

* White House says delay is typical for a transition year

* Republicans see political maneuvering around health care

* One economist expects ‘09 deficit projections to drop (Adds economist, White House spokesman)

By Jeff Mason

WASHINGTON, July 20 (Reuters) - As unemployment rises and economic forecasts sour, the White House has delayed until August the release of its mid-year budget review, which is likely to include a revised projection of the 2009 deficit.

The review, a regular update of the executive branch’s outlook for the U.S. fiscal picture, is normally published in July, but officials said it had been rescheduled because of delays typical in years when a new president has taken office.

Republicans accused President Barack Obama’s Democratic administration, which is urging Congress to pass a costly overhaul of the U.S. healthcare system, of sidelining bad news on budget deficits until after lawmakers leave Washington for their August recess.

“Let’s be honest about what this is: an attempt to hide a record-breaking deficit as Democratic leaders break arms to rush through a government takeover of healthcare,” said John Boehner of Ohio, the top Republican in the House of Representatives.

“By burying this budget update until after Congress leaves town next month, the administration is not willing to own up to the consequences of this dangerous fiscal agenda,” he said.

The White House Office of Management and Budget called the delay normal for the first year of a new presidential term.

“Because of the unique circumstances of a transition year, we are -- like President George W. Bush in 2001 -- releasing the Mid-Session Review a few weeks later than as is usual in non-transition years,” OMB spokesman Kenneth Baer said.

In May, the White House pushed up its budget deficit estimates for 2009 to $1.84 trillion -- representing a massive 12.9 percent of gross domestic product.

A White House forecast released in February projected a deficit of $1.75 trillion, or 12.3 percent of GDP, for the 2009 fiscal year, which ends Sept. 30.

DEFICIT CHANGES

One economist said the deficit forecast was likely to decline if the White House removed a $250 billion “placeholder” it had in the budget for potential financial rescue measures.

“I don’t think the delay is because this year’s fiscal deficit is going to be so much worse than they said it was going to be,” said Nigel Gault, chief U.S. economist at IHS Global Insight. “I think it’s going to be smaller.”

Gault said it was unlikely the White House would ask Congress for further financial rescue money between now and the end of this fiscal year. He expects the 2009 deficit to come in around $1.6 trillion.

Still, a worsening economic picture since the initial projections will play into the latest review.

White House press secretary Robert Gibbs, calling criticism of the delay “silly,” said the budget situation was tough.

“We’ve seen over the course of the first six to seven months of this year a fairly rapid deterioration in the very beginning of this year on the economy, and I expect that the budget situation is going to be even more challenging,” he told reporters. “I don’t think that’s surprising.”

Unemployment hit a 26-year high of 9.5 percent in June and is likely to keep rising, probably topping the psychologically significant 10 percent level.

The Federal Reserve expects unemployment to fall modestly in 2010, even though it expects economic growth to resume. In the updated forecasts it released last week, the Fed estimated 2010 unemployment in the 9.5 percent to 9.8 percent range, gloomier than its April estimate of 9 percent to 9.5 percent.

The jobless rate takes a toll on the government’s coffers, with higher outlays going toward unemployment benefits and lower revenues coming in from out-of-work citizens.

Soaring budget deficits have made it harder for Obama to sell his domestic agenda, but the president argues healthcare reform is critical now, despite its cost, to strengthen the U.S. economy in the future. (Additional reporting by Emily Kaiser; Editing by Peter Cooney)

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