The update, known as the mid-session review, increases the White House estimates of America’s cumulative ten-year deficit by almost $2 trillion, to a new total of $9.05 trillion. The White House Office of Management and Budget (OMB) expects this year’s deficit to be smaller than first predicted: 11.2% of GDP rather than 12.9%. This is largely because money which Mr Obama had expected to use to prop up the banking system will no longer be needed. Federal debt will reach 77% of GDP in 2019, up from 41% in 2008.
The problem lies in the longer term. America’s public finances show no sign of recovering to anything near a sustainable level in the coming years. The average deficit over the next decade is now expected to be 5.1% of GDP, compared with an average of 4% in the original budget. Even in 2019, the last year of the forecast period and long after the financial crisis, Mr Obama’s team expects a deficit of 4% of GDP (see chart).
By the way, as for the cost savings in Obama's health care:
The Obama team argues, rightly, that controlling health-care costs is a big part of the long-term fiscal solution, though it is less clear that their plans achieve this. America’s fiscal mess will be also be eased if the economy grows faster than expected, which suggests team Obama should be cautious about undermining incentives to save and invest. But other spending cuts and higher tax revenues will also be needed. Otherwise, America’s depressing budget figures will get darker still
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