Deficit Estimate Goes Up Again
White House Maintains It Will Shrink Next Year
Ok...everyone that's surprised, go back and look at how the Administration said there would be surpluses out as far as the eye could see.
By Jonathan Weisman
Washington Post Staff Writer
Friday, July 12, 2002; Page E01
The White House plans to release new budget deficit projections today that will show the federal government to be as much as $150 billion in the red this fiscal year, according to congressional budget experts.
But the Office of Management and Budget also is expected to predict a smaller budget deficit for the next fiscal year, in sharp contrast to private forecasters and even Republicans on Capitol Hill, the experts said.
Moreover, House Republicans are pushing the Joint Committee on Taxation to adopt new economic models that would offset the cost of tax cuts by assuming that they would stimulate economic growth. Such "dynamic scoring" could free up billions of dollars for tax cuts or spending increases simply by changing forecasting methods.
Critics have said the same creative approach to accounting that has roiled the financial markets is creeping into federal budgeting.
"It's like what happened in the corporate community is now infecting the government," said Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee. "Maybe these guys are cross-fertilizing."
Such talk could be expected from Democrats, but even some congressional Republicans are concerned, if for no other reason than Democrats can use the Republicans' own budget forecasts as ammunition in challenging the White House's projections. Republicans on the Senate Budget Committee expect the deficit to grow to $194.4 billion in fiscal 2003, compared with this year's $152.2 billion.
At first blush, the White House's new budget forecasts will appear anything but optimistic. New spending, tax cuts and significantly lower tax revenue will result in a deficit this year of as much as $157 billion, sources said. That compares with the $106 billion deficit the White House predicted in February.
But the OMB foresees a smaller deficit in fiscal 2003, which begins in October.
The estimates of the Republican Senate Budget Committee staff are close to those of their Democratic counterparts. And those numbers are in line with House Democratic forecasts, which are for a deficit of $167 billion this fiscal year and $197 billion in fiscal 2003.
Private forecasters are also pessimistic. Cynthia Latta, the principal U.S. economist at DRI-Wefa, recently predicted that the federal deficit next year will be about the same as this year's. But, she said, "If I were to make changes now, they would make the deficit look larger, not smaller."
The White House projections are significant, since they provide the underpinnings of President Bush's economic plans. If the revenue picture grows worse, it will be harder for Bush to push his agenda of making the 2001 tax cuts permanent, creating private investment accounts in the Social Security system and addressing the complexity of the tax system.
Budget office officials refused to comment on the White House numbers until their release. But OMB spokeswoman Amy Call indicated that the divergence between the congressional and White House numbers will boil down to federal spending.
"The bottom line is, if we don't control spending, the deficit will continue to grow, period," she said.
But a Republican Senate aide said the White House could find a positive trend only by assuming a quick and robust upturn in the stock market, or a powerful economic surge that would enrich affluent Americans, who pay most federal taxes.
Both scenarios are plausible, the aide said, but they are growing increasingly unlikely in the short term.
Rudy Penner, a former director of the Congressional Budget Office, said the White House's estimates may be as good as anyone else's.
"Nobody really knows, at this point," he said.
Meanwhile, the Joint Tax Committee is proceeding with a controversial re-examination of "dynamic scoring." The concept holds that $1 in tax cuts does not cost the Treasury $1 because it boosts economic growth and thus creates more tax revenue. Economists of all political stripes agree that tax cuts do affect the economy. The problem, many say, is accurately predicting how.
The concept was widely cited in the 1980s, during the debates over President Ronald Reagan's tax cut. But huge budget deficits in the 1980s and early 1990s, followed by rising surpluses in the late 1990s, pushed the issue aside. Now, the return to deficits has emboldened advocates of further tax cuts, such as House Ways and Means Committee Chairman Bill Thomas (R-Calif.).
At Thomas's request, the Joint Committee on Taxation convened a panel of economists last month to examine the issue. The group will meet again in September and hopes to report its recommendations early next year, panel members said.
The apparent seriousness of the endeavor prompted Conrad and Senate Majority Leader Thomas A. Daschle (D-S.D.) last month to write to the committee's chief of staff, Lindy L. Paull, demanding that she dissolve the panel. On Tuesday, Thomas responded with a letter to Paull that said, "Only partisan political interests could motivate [the Democrats'] strong commitment to the imperfect status quo with such utter disregard for openness, refinement of government processes, and the advancement of revenue estimating methodologies."
Sen. Pete V. Domenici (R-N.M.), the ranking Republican on the Senate Budget Committee, joined the dispute in a letter with Conrad urging caution before adopting new methods to predict the cost of tax cuts. G. William Hoagland, the Senate Budget Committee's Republican staff director, pointed to the impact of last year's tax cuts on the federal deficit.
"Reality is reality," Hoagland said. "Revenues went down."
For those that believe the next year's White House projection: White House Maintains It Will Shrink Next Year...Please note in the above article that the White House deficit estimate went up nearly 50% since Feb....
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