Financial crises will tie hands of next president

Proposed programs would expand deficit

WASHINGTON -- The next president will take office in January with little hope of getting his pet programs enacted quickly, if at all, because of already-massive budget deficits likely to balloon even further from the hundreds of billions expected to be used to bail out Wall Street.

"The next president is just not going to have the money to meet his promises," said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, a nonpartisan budget-research group.

Democratic nominee Barack Obama and Republican rival John McCain have big plans that would add substantially to the deficit.

By 2013, when his changes would be fully implemented, Obama would boost the deficit by $360 billion with his tax cuts and by another $65 billion with his health care plan while partially offsetting that with $139 billion saved through winding down the Iraq war and making other spending cuts, according to U.S. Budget Watch, a nonpartisan research group.

McCain's tax cut plan would add $417 billion to $485 billion to the deficit, while his health care policies would cost an additional $54 billion to $65 billion. Iraq troop reductions and "unspecified cuts to balance the budget" could save $291 billion to $304 billion, however.

The bottom line: Both would sharply increase the deficit, which already is headed to record territory.

"They've got to be asleep not to see this is bad news," said David Walker, the president and chief executive officer of the Peter G. Peterson Foundation, which promotes sound fiscal policy.

The Congressional Budget Office has estimated that the deficit for fiscal 2008, which ends Sept. 30, will rise to $407 billion, while next year's figure could hit $438 billion, shattering the record of $413 billion in fiscal 2004.

The 2008 and 2009 numbers are conservative estimates, since they don't include the federal bailouts of mortgage giants Fannie Mae and Freddie Mac or failed insurer American International Group.

Hundreds of billions

On Friday, the government unveiled what's likely to be the most expensive twist of all: a still-evolving plan to create a way for the government to buy troubled bank assets, probably the biggest bailout in U.S. history.

"We're talking hundreds of billions" of dollars, Treasury Secretary Henry Paulson said.

The Bush administration on Saturday formally requested virtually unfettered authority for the Treasury to buy up to $700 billion in mortgage-related assets from financial institutions based in the United States, The New York Times reported.

As a result, "what was already a very difficult decision for the next president -- how to deal with taxes and spending -- has now become extremely difficult," said Brian Riedl, senior policy analyst at Washington's Heritage Foundation, a conservative research group.

Traditionally, the first few months of a new presidency are the White House's most successful. Ronald Reagan won approval of his 25 percent, three-year tax cut in July 1981. Bill Clinton saw his $496 billion, five-year deficit-reduction plan pass in August 1993, and George W. Bush got his $1.35 trillion tax cut through Congress in May 2001.

McCain and Obama are touting ambitious efforts to revamp health care and provide tax breaks.

Add to that billions in new spending. McCain would increase funding to the No Child Left Behind education program, which would cost an estimated $13 billion in 2013, and would boost the size of the military, a $10 billion plan. Obama also would spend more on education, create an "infrastructure reinvestment bank" for $6 billion, double foreign aid and increase the size of the military, which would carry a $20 billion price tag.