(Recasts, adds details, background)
By Jeremy Pelofsky
WASHINGTON Jan 13 President-elect Barack
Obama's incoming budget director warned on Tuesday that even
after the U.S. economy recovers, the budget gap will still be
around 5 percent of gross domestic product for up to a decade.
Peter Orszag, Obama's nominee to head the White House
Office of Management and Budget, said that the driver of the
long-term budget deficits was rising health care costs, but he
pledged the new administration would work to wrestle them under
"The simple fact is that under current policies, the
federal budget is on an unsustainable path," Orszag told the
Senate Budget Committee considering his nomination, which must
be approved by the panel and the full Senate.
"Even after the economy recovers from the current downturn
and again under current policies, the nation faces the prospect
of budget deficits that are in the range of about 5 percent of
GDP over the next five to 10 years," Orszag said.
He said after that period, they would grow even larger.
Even with an economic stimulus plan, he warned that "We're
still in for some period of economic difficulty."
The Congressional Budget Office last week forecast that the
budget deficit for fiscal 2009, which began Oct. 1, would
likely hit $1.2 trillion, or a record 8.3 percent of GDP,
blowing away the previous post-World War Two record of 6
percent hit in 1983.
Even with the soaring deficit, the rating agency Standard &
Poor's affirmed its "AAA" rating on Tuesday for the United
States, but said risks to the country's top sovereign rating
have increased since September.
Orszag's nomination won bipartisan praise in the committee,
and Senate Budget Committee Chairman Kent Conrad, a North
Dakota Democrat, said he wanted to move quickly to approve his
Orszag, who already has extensive budget experience from
his current job as CBO director, said the Obama administration
planned to "set a new standard for how we spend taxpayer
The incoming administration will likely unveil its new
budget and economic overview in middle or late February.
On the health care issue, Orszag said in his testimony to
the committee the Medicare and Medicaid health care programs
needed to be changed, but in a way that also drives down the
rate of growth in costs in the broader health care system.
"Were we to try to slow Medicare and Medicaid spending
alone without slowing the rate of growth in health care costs
system-wide, we would simply create massive access problems for
Medicare and Medicaid beneficiaries," he said.
To address the short-term economic problems, the Obama team
has been pushing for a stimulus program that could top $775
billion over two years and includes tax cuts and big
infrastructure projects despite skepticism in Congress.
Orszag said the economy could receive a boost from
infrastructure projects, particularly those that expend most of
the money in the next two years, as well as investments in
renewable energy and improving health-information technology.
"There are some concerns I have about the stimulus package,
particularly the size of it," said Sen. Jeff Sessions, an
Alabama Republican, adding that it could add a burden to the
country and economy over the longer term.
(Editing by Tom Hals and Philip Barbara)