Deficit forecast at record $455 billion

By Alan Fram
Associated Press

WASHINGTON — The Bush administration today projected that the federal deficit will climb to a record $455 billion this year and surge to $475 billion in 2004, underscoring the toll that recession, tax cuts and the fight against terrorism is taking on the government's books.

The White House estimated the red ink will begin to ease after that, dipping to $213 billion in 2007. The deficit will bump upward again to $226 billion in 2008, according to the figures.

The numbers accentuate that while the White House expects the huge shortfalls to begin to decline, they remain a long-term concern Ð especially with the huge baby boom population ready to start retiring later this decade.

The enormous new figures, to be unveiled later in the day by the White House, are certain to throw gasoline on the political fight over the budget. They were described by two Republicans who spoke on condition of anonymity.

Even before the official figures were released, Republicans in Congress sought to place the blame on federal spending, rather than the tax cuts they voted through at President Bush's urging.

House Majority Leader Tom DeLay, R-Texas, referred to the rising red ink as a "spending-driven deficit."

Rep. Jim Nussle, R-Iowa, the chairman of the House Budget Committee, used the same phrase, and added, "Tax cuts do not cause deficits. ... You only borrow money in Washington for spending. These are spending-driven deficits."

Federal Reserve chairman Alan Greenspan told a House committee that he still supports tax reductions to spur a torpid economy. But in remarks that could complicate future Republican drives for new tax cuts, he said the reductions should be paid for with spending cuts or tax increases to keep the budget situation from getting worse.

White House spokesman Scott McClellan tried to put the best face on the projections, which easily exceed the record $290 billion shortfall recorded in 1992.

"The deficit certainly remains a concern, but it's one that is manageable and it's one that we are addressing," McClellan told reporters. "Over the next few years, we will cut this deficit in half. It is a priority that we are addressing."

McClellan provided no details on how Bush will achieve such a major reduction in the budget shortfall, or precisely how long that would take. An economic recovery by itself would tend to reduce the deficit as businesses and individuals pay more taxes to the government, but that could be offset by tax cuts and higher spending.

"It's part because of how we're managing things, addressing the spending side of things ... but it's also getting the economy growing," McClellan said.

"The economic forecasts are that the economy will be growing at a much stronger rate in the coming years."

Democrats say that if anything, the real deficit will be worse than the administration's budget projections because the White House is expected to exclude some items like the costs of the U.S. occupation of Iraq.

"What's missing from today's presentation is any plan or process to address what clearly is a worsening problem," South Carolina Rep. John Spratt, top Democrat on the House Budget Committee, said today in an interview. "One has to be skeptical of these numbers."

With the sky-high numbers bringing fresh attention to the budget problem, Democrats were ready to take the offensive in accusing the president of mismanaging the budget — and by extension the economy.

Republicans were also hoping to use the numbers to their advantage, arguing that they highlight the need to restrain federal spending. They say the weak economy and costs of fighting terrorism are the chief culprits, and that only by fixing the economy and getting people back to work will the budget ills be cured.

Today's forecast deficits for this year and next are about 4 percent the size of the U.S. economy. Republicans, who have been playing down the steadily worsening deficit numbers all year, say that comparison is more important than the shortfall's size because it shows whether the government can afford to carry the debt.

Even so, a shortfall 4 percent as large as the economy begins to approach the dimension of the deficits of the 1980s and early 1990s that both parties agreed then were untenable.

The numbers also underscore the unprecedented speed with which the government's books have turned sour.

The government ended its 2001 budget year with a $127 billion surplus, the fourth straight and second largest ever. But since then, the budget has tumbled through its most abrupt, steepest reversal ever. Last year, deficits returned, with the red ink reaching $158 billion.

Until now, the most recent White House projection was the $304 billion it forecast in February for this year and $307 billion for 2004.

The government's 2004 budget year begins Oct. 1.