U.S. Deficit to Reach Record $490 Billion in 2009

The U.S. budget deficit will widen to a record of about $490 billion next year, an administration official said, leaving a deep budget hole that will constrain the next president's tax and spending plans.

The projected deficit for the fiscal year that begins Oct. 1 is higher than the $407 billion forecast by President George W. Bush in February. The bigger shortfall reflects dwindling tax receipts because of the U.S. economic slowdown, the cost of a $168 billion economic stimulus package and spending on the wars in Iraq and Afghanistan.

``We've already seen a pretty sharp cooling in tax receipts, and it's just going to continue into next fiscal year,'' Stephen Stanley, chief economist at RBS Capital Markets, said in a telephone interview.

The deficit projection will burden either Republican John McCain and Democrat Barack Obama, the presumptive presidential nominees of the major political parties, with a constricted budget that has little room for cutting taxes or increasing spending. The next president also will inherit the deepest housing recession in a generation, fears of a crisis in the banking industry, a falling dollar and high energy prices.  - continued on bloomberg