<<budget deficit is likely to be almost $1,000bn larger over the next decade than previously projected>>
US federal deficit to rise by extra $986bn
By Christopher Swann in Washington
Published: January 26 2004 19:23 | Last Updated: January 26 2004 19:23
news.ft.com
The US budget deficit is likely to be almost $1,000bn larger over the next decade than previously projected, according to the new official congressional forecast released on Monday.
Economists said the new estimates from the Congressional Budget Office, the non-partisan agency of Congress, suggested President George W. Bush would struggle to meet his administration's pledge to halve the deficit over the next five years.
The CBO predict a cumulative deficit of $2,350bn between 2004 to 2013 - $986bn more than it forecast just six months ago.
The projections underscore the dramatic deterioration in the US budget position under the Bush administration. Democrats, who have been making great play of the administration's lack of fiscal restraint, seized on the figures to step up their attacks on the White House.
John Spratt, a Democratic member of the House budget committee, said the deficit was now reaching alarming proportions. "While Republicans suggest that these record-breaking deficits are 'manageable', there is growing awareness of the dangers these deficits pose to the economy," he said.
"Chronic deficits crowd out private investment, push up interest rates, and slow down economic growth. The specter of large and uncontrolled budget deficits could cause dramatic dislocations in financial markets."
Of the deterioration in the 10-year outlook since the CBO's previous forecasts last August, $681bn is due to legislation enacted by Congress last year. This includes a $400bn plan to add a prescription drug benefit to Medicare, the federal health programme for the elderly, and add to incentives to private insurers to participate in the programme.
The CBO is also assuming that lower inflation will eat into federal revenues and that even strong economic growth will produce more modest tax revenues than in the late 1990s.
Analysts warned that the fiscal outlook could be even more gloomy than the CBO's headline forecast.
Under its rules, the CBO assumes that discretionary spending will rise by little more than the rate of inflation, falling as a share of gross domestic product.
The CBO's analysis shows that if other administration pledges were included, the deficits would be even larger. That in turn would defeat the administration's target of halving the deficit in the next five years.
Mr Bush has pledged that a series of tax cuts enacted by his administration, which had been due to expire, would be made permanent. The Bush administration has also said it will reform an obscure part of the tax code called the alternative minimum tax to prevent it affecting middle-class taxpayers.
Many economists are sceptical that the administration will be able to keep discretionary spending increases under control over coming years. |
