New House budget projections show deficit drop

Published: Thursday, January 25, 2007 at 6:01 a.m.
Last Modified: Thursday, January 25, 2007 at 12:00 a.m.

WASHINGTON — The deficit picture has improved, but the increasingly expensive war in Iraq and the need for costly updates to the tax code offer a "bleak reminder" of economic challenges facing Congress, the House Budget Committee chairman said Wednesday.

The new Congressional Budget Office budget projections released Wednesday credit revenue increases and lower costs for federal health care programs for the bulk of improvements that could drop the 2007 budget deficit to about $200 billion once new war costs are factored in.

CBO's official "baseline" deficit forecast for the current budget year is $172 billion, but an upcoming request for new funds for Iraq promises to add $25 billion or so to that figure, said CBO Director Peter Orszag.

Rep. John Spratt Jr., who heads the House budget panel, took little solace in the improvements. The CBO estimates, said the South Carolina Democrat, are a "bleak reminder of how much current policy will need to be changed to return the budget to a fiscally responsible course."

That's because the CBO data confirms that a combination of painful spending cuts and politically challenging tax increases will be needed if Democrats are to match President Bush's promise to balance the budget in five years.

CBO's official deficit forecast for the ongoing 2007 budget year, which ends Sept. 30, is $172 billion. But that assumes Congress will make no further appropriations for military operations in Iraq and Afghanistan. President Bush is expected to ask for more than $100 million in additional war funds when he submits his budget Feb. 5.

Oszag said just $25 billion of Bush's $100 billion war request, expected Feb. 5, will register in the 2007 budget year ending Sept. 30.

Congress approved $70 billion last fall for Iraq and Afghanistan military operations.

The latest CBO figures, released Wednesday, also predict the budget could come back into surplus by 2012, although that would require Bush's tax cuts to expire at the end of 2010 as under current law. The surplus for 2012 would reach $170 billion.

The budget deficit for 2006 registered $248 billion.

The estimates provide a basis for majority Democrats on Capitol Hill to work to match Bush's vow to balance the federal budget in five years.

The improvement in the deficit figure comes as federal tax receipts have continued to grow above estimates. CBO sees 2007 revenues improving by $28 billion since last summer, despite a round of tax cuts.

The agency's latest figures are, at best, a rough estimate since CBO follows strict conventions, including assuming that Bush's tax cuts expire as scheduled under current law. If they are extended, along with changes to the alternative minimum tax (AMT), the costs would swamp the projected surplus for 2012 with $365 billion in lost tax revenues and interest costs, according to CBO figures.

The White House weighed in with a new call Wednesday to balance the budget without curbing Bush's two major rounds of tax cuts in 2001 and 2003.

"We are now on a solid path toward the president's new goal to achieve a balanced budget by 2012, while making the tax cuts permanent and better constraining spending," said White House budget director Rob Portman. "Congress should be encouraged by this news and I am optimistic that we can work together — across party lines — to keep the economy strong and spend taxpayer dollars wisely."

Spratt said that any improvement in the deficit is welcome but added that the CBO's latest report is "no cause for celebration of victory."

"Today's estimates do not include the cost of extending the administration's tax cuts nor the cost of reforming the AMT, and in all likelihood understate the likely level of expenditures for operations in Iraq and Afghanistan," he said.

The nonpartisan agency, which provides lawmakers with estimates of the budget and the costs of legislation, sees a $98 billion deficit for the 2008 budget year beginning Oct. 1. That's the budget cycle Congress will begin work on shortly after Bush submits his budget Feb. 5.

Some Democrats are worried that Bush's budget will reach balance chiefly by forecasting far higher tax revenues than the White House has previously predicted. Lawmakers typically follow CBO's estimates, which are likely to be more conservative.

The government has already closed the books on the first quarter of fiscal 2007, displaying a $35 billion improvement in the deficit when compared the same period in 2006. The deficit for the first quarter totaled $85 billion.

Despite the improvements, the deficit picture remains worse than when Bush took office six years ago. Then, 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 attacks 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.

After deficits swelled on Bush's watch, he issued a 2004 promise to cut the deficit in half by the end of his second term, establishing a $260 billion goal for 2009. CBO sees a $116 billion deficit for that year.

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