WSJ(1/28)UPDATE:Deficit Forecast Likely To Show Big Widening
27 Jan 21:15
By John D. McKinnon
WASHINGTON -- The Congressional Budget Office's closely watched annual
forecast of federal finances is likely to show a big widening in the fiscal
2003 deficit, complicating President Bush's plans for big tax cuts and spending
increases for security and Medicare.
Unofficial Senate Republican estimates put the CBO's deficit number, due out
tomorrow, at as much as $175 billion for 2003, wider than its August estimate
of $145 billion. Private-sector economists figure the deficit will be even
wider -- as much as $200 billion or more. House Democrats have estimated it
will be more than $230 billion before any new spending or tax breaks.
Add in President Bush's proposals for tax cuts and a war with Iraq, and the
2003 deficit could swell to $300 billion, some economists say. The 10-year
outlook also is likely to show deterioration, with estimates ranging to as much
as a $1.7 trillion deficit, when all likely future tax cuts are taken into
account.
The darkening fiscal picture complicates the job of policy makers. On the one
hand, Mr. Bush and many lawmakers would like to jump-start the flagging economy
by cutting taxes again this year. They also want to add a costly
prescription-drug benefit to Medicare, as part of a broader overhaul.
But economists are warning that deficits could grow so wide that they would
choke off much of the economic benefit of any stimulus measures, by forcing
interest rates higher. "If the economy does improve, you could see a spillover
effect on interest rates . . . by late this year," said David Greenlaw, an
economist with Morgan Stanley in New York.
Mr. Bush's plan ran into another possible obstacle yesterday when California
Rep. Bill Thomas, chairman of the Ways and Means Committee, said it must be
carefully examined to determine if the centerpiece, a big break for
shareholders on dividends, has unintended consequences forsecurities markets.
Even with the expected widening -- due largely to lower tax collections --
deficits remain manageable. A $175 billion deficit would amount to less than 2%
of the U.S.'s economy of roughly $11 trillion. Mr. Bush's tax cut plus a war
could raise the deficit to 3% in 2003 and 2004, some analysts say. Postwar U.S.
deficits peaked in 1983 at 6% of gross domestic product.
(END) Dow Jones Newswires
01-27-03 2115ET |
