Deficit Headed for Record $480 Billion -- Action Hero SpongeBob Squarepants leading field of candidates in Presidential recall election
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By Janet Hook, Los Angeles Times - August 26, 2003
latimes.com
WASHINGTON -- Despite recent signs of an improving economy, the federal budget's outlook has "deteriorated substantially" in the last six months and a record deficit of at least $480 billion is projected for 2004, according to the nonpartisan Congressional Budget Office.
The deficit would grow even larger, the CBO said in a report released Tuesday, if Congress enacts a prescription drug benefit under Medicare, makes permanent a raft of tax cuts due to expire by decade's end and approves other tax relief proposals. Those initiatives could add $5 trillion or more to the deficit over the next decade, the report estimated.
Douglas Holtz-Eakin, the budget office's director, said there was no sign the burgeoning deficit has yet hurt the economy. But it could become troublesome if it continues to grow and if lawmakers do not pick and choose among the various spending initiatives and tax cuts pending in Congress.
"Choices do matter," Holtz-Eakin said. "We can't do everything simultaneously."
On other economic fronts, the new report offers a mixed picture. While the CBO predicts economic growth between now and the 2004 elections, it foresees no significant reduction in the unemployment rate, which was 6.2 percent in July.
By contrast, a report last month by the White House's Office of Management and Budget predicted unemployment would drop to 5.6 percent in 2004. The OMB was also more optimistic than the CBO about the 2004 deficit, which it predicted would be $458 billion if current policies were unchanged.
For 2003, OMB predicted a $455 billion deficit; CBO expects it to run $401 billion.
The discrepancies are largely caused by different technical assumptions by the two offices.
The Center on Budget and Policy Priorities, a liberal research group, warned that if the deficit is not reined in, it would jeopardize the government's ability to pay for the impending retirement of the Baby Boom generation.
The Bush administration and its allies argue that, as it conducts its war on terrorism and tries to improve a struggling national economy, balancing the budget has to take a back seat to spending on homeland security, national defense and other matters.
"The budget can be balanced within a few years if we ignore these priorities, but fortunately this president and Congress have chosen to address them," said Hazen Marshall, GOP staff director for the Senate Budget Committee.
Republicans also argue that the deficit is manageable because, although it is higher than ever in absolute terms, it is not at its largest relative to the size of the economy. The current deficit represents about 3.7 percent of the gross domestic product, compared to the 6 percent peak reached in 1983.
But Holtz-Eakin of the CBO said the deficit could reach 7 percent of the gross national product if Congress does not thwart some of the spending and tax-cut initiatives.
The new CBO analysis is the latest in a series of government reports that document a dramatic turnaround in federal finances since early 2001, when the office projected a $5.6 trillion surplus over 10 years. As recently as last March, CBO predicted that despite looming deficits over the next few years, the budget would return to balance by 2008 and run a $891 billion surplus over the decade of 2004-2013.
Now the budget office sees a grimmer picture. As the deficit increases, the report predicts the red ink will not turn to black until 2012, four years later than the CBO projected in March.
The report said the change was based on two factors: the $350 billion tax cut and spending package Congress enacted in May to stimulate the economy and the large spending increases it approved to pay for the war in Iraq and other unanticipated expenses.
The Bush administration has argued that the best way to reduce the deficit is to boost economic growth, which would increase the flow of tax revenues. But Democrats in Congress say the deficit gap is now so large that growth alone cannot close it. They said it was Bush's responsibility to propose policy changes to reverse the rising tide of red ink.
But with the 2004 election on the horizon, analysts say it seems doubtful that the White House or Congress would propose painful budget cuts or tax increases to reduce the deficit. |
