By Caren Bohan and Richard Cowan
WASHINGTON (Reuters) - The White House on Monday increased its forecast for the U.S. budget deficit for this year by $89 billion, reflecting the recession, a raft of new unemployment claims and corporate bailouts.
A fresh estimate of the deficit showed it coming in at $1.84 trillion -- representing a massive 12.9 percent of gross domestic product -- in the current 2009 fiscal year that ends on September 30. A prior White House forecast released in February projected a deficit of $1.75 trillion, or 12.3 percent of GDP.
The report may add to the political challenges facing President Barack Obama as he seeks to push through a new healthcare plan and other big domestic initiatives.
White House officials said the gloomier deficit picture reflected weaker tax receipts as the economy declined and higher costs for social safety-net programs such as unemployment insurance. Spending on the government rescues for the financial and automobile industries also was a factor in the higher deficit, according to the White House.
"The change in the deficit estimates reflects upward technical revisions in light of new information regarding the collection of receipts, financial stabilization efforts and other federal programs," White House budget director Peter Orszag said in a blog posting.
While the Democratic-led Congress has given its approval to the broad outline of Obama's proposed budget for the 2010 fiscal year that includes initiatives on healthcare, education and other items, some moderate Democrats and a number of Republicans have expressed wariness about the deficit outlook.
Republicans contend that Obama's agenda would sharply increase the size of government and add to a mountain of debt but Democrat Obama counters that the enormous deficits are a legacy of President George W. Bush, a Republican.
The higher deficits "are driven in large part by the economic crisis inherited by this administration," Orszag said.
The report from the White House Office of Management and Budget also revised the deficit higher for the 2010 fiscal year, forecasting it at $1.26 trillion, or 8.5 percent of GDP, and up $87 billion from the $1.17 trillion projection given in February.
PROPOSED BORROWING INCREASE FOR FDIC
The fresh budget documents also included a proposal by Obama to increase the borrowing authority of the Federal Deposit Insurance Corp to $100 billion from $30 billion.
The increase is intended to help the agency protect bank depositors amid expectations that more financial institutions may fail this year. The money also would aim to ease strains on banks by lowering the cost they pay to the government for deposit insurance.
After taking office in January, Obama released a bare-bones version of his budget in February that offered a spending plan for 2010 carrying a price tag of $3.55 trillion. The White House revised up the size of the spending plan to $3.59 trillion.
The U.S. economy shrank at a surprisingly steep 6.1 percent rate in the first three months of this year.
The new White House figures bring the deficit estimates closer in line with the non-partisan Congressional Budget Office, which has forecast a $1.85 trillion deficit this year and $1.38 trillion in fiscal 2010.
To allay worries about the deficit and fend off Republican attempts to paint him as a big spender, Obama in the past week has rolled out a series of announcements aimed at showing he is working to stem the red ink.
Last week, he said he could wring $17 billion in savings from his budget by cutting waste in areas from weapons systems and education to the cleanup of abandoned mines.
But the cuts in 121 programs amounted to less than one-half of 1 percent of the total budget for 2010 and even the slim list of reductions is likely to face resistance in Congress.
A Senate Republican aide noted the budget reassessment added more than five times the amount to the deficit than the administration proposed saving with the $17 billion in cuts.
Obama also unveiled details of his plan to toughen tax policies for multinational companies that invest abroad and to close loopholes on overseas tax shelters. Many businesses strongly oppose the proposed changes for multinational firms.
Later on Monday, Obama will preside over a White House forum aimed at highlighting budget savings that could be reaped by making the healthcare system more efficient.
Trade groups such as the American Medical Association and the American Hospital Association as well as labor unions are expected to present Obama with a letter pledging to reduce the growth of health spending by 1.5 percentage points annually.
The healthcare event appears likely to gloss over the political battle looming over Obama's push to establish a new public health insurance plan to help cover the estimated 46 million uninsured Americans.
(Additional reporting by John Poirier; Editing by Eric Beech and Bill Trott)
