Budget deficit to hit $337 billion


Published: Friday, January 27, 2006 at 6:01 a.m.
Last Modified: Thursday, January 26, 2006 at 9:02 p.m.
WASHINGTON - The budget deficit will rise to at least $337 billion this year and may well approach or exceed $400 billion because of tax cuts and new spending for hurricane relief and the war in Iraq, congressional budget analysts said Thursday.
The latest Congressional Budget Office data also suggest President Bush is unlikely to be able to keep his promise to cut the federal deficit in half by the end of his term.
Even assuming a phasing down of the war in Iraq and the costs of hurricane relief, implementing tax cuts sought by Bush and Congress would produce deficits exceeding $300 billion through the end of the decade, the nonpartisan CBO says.
The report and Bush's annual budget submission kick off a predictably partisan election-year debate over the budget, which will play out against the backdrop of rising deficits, record spending and renewed concern about lawmakers' penchant for homestate pet projects.
Bush promised in 2004 to close the deficit from a then-estimate of $521 billion to $260 billion by 2009, and he promised again Thursday to meet that goal when he sends an austere fiscal 2007 budget to Congress on Feb. 6.
"We can cut our deficit in half by 2009 and make sure the American people still get their tax relief," Bush told reporters.
Bush critics say he routinely plays games with the budget by leaving out the long-term costs of the war in Iraq and redrawing the tax code so more and more middle-class taxpayers won't get hit by the alternative minimum tax. Congress typically rejects most of his proposals for benefit cuts and new fees.
Even though CBO must follow rules that mean its official estimate is flawed - by reflecting current law even when future changes to the budget are virtually certain to be passed - its data is respected for impartiality.
CBO's official baseline shows the deficit dropping to $241 billion by 2009 and $114 billion by 2001. But those estimates assume Bush's tax cuts expire and the alternative minimum tax is left alone. That tax, designed to stop the wealthy from avoiding all taxation, threatens more middle class taxpayers every year because of inflation.
Under a more realistic scenario, extending tax relief, drawing down troop levels in Iraq, and phasing out hurricane relief, CBO predicts a $332 billion deficit for 2009, the last fiscal year for which Bush is responsible.
For its part, the White House reiterated Thursday that it thinks the 2006 deficit would actually top $400 billion because of the costs of tax cuts, the war in Iraq and new hurricane relief.
"This administration is driving us over the cliff into deeper and deeper debt," said Kent Conrad of North Dakota, the Senate Budget Committee's top Democrat.
According to the CBO report, the expiration of Bush's tax cuts would return the budget to a surplus of $38 billion by 2012. Keeping his tax cuts in place would put the government into a $289 billion deficit that year, but Bush rejected any talk of letting his tax cuts lapse at the end of the decade as currently scheduled.
"We don't need to be running up the taxes right now," Bush said Thursday. "You know, people say, 'Well, let's raise the taxes and balance the budget' - that's not how it works; they're going to raise your taxes, and they're going to continue to expand the government."
The government recorded a $319 billion deficit for 2005. The record deficit in dollar terms of $413 billion was registered in fiscal 2004.
Economists say the more significant measure is against the size of the economy. In those terms, CBO's 2006 deficit prediction would equal 2.6 percent of gross domestic product and would be significantly better than deficits witnessed in the mid-1980s and early 1990s. Then, deficits of 4 percent to 6 percent of GDP were common.
On the economy, CBO predicts continued robust growth of 3.6 percent this year and 3.4 percent next year, slowing to an average of 3.1 percent over 2009-2011.
With near-term deficit predictions going up, Republicans in Congress are feeling political heat from their core supporters, who say the party's record of fiscal discipline is slipping.
Republicans are particularly upset about the proliferation of lawmakers' pet projects under GOP control of Congress. For instance, total spending on such "earmarks" hit $17 billion in the latest round of congressional appropriations bills, House Appropriations Committee tally says.
When Bush took office in 2001, both White House and congressional forecasters projected cumulative surpluses of $5.6 trillion over the subsequent decade.
But a revenue bubble burst, a recession and the Sept. 11, 2001, terrorist assaults adversely affected the books. Several rounds of tax cuts, including Bush's signature $1.35 trillion 2001 tax cut, also contributed to the return to deficits in 2002 after four years of budget surpluses.
--- On the Net: CBO: http://www.cbo.gov/ House Budget Committee: http://www.budget.house.gov/
Senate Budget Committee: http://www.budget.senate.gov/

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