Budget deficit

From: Rakesh Bhandari (rakeshb@STANFORD.EDU)
Date: Wed Aug 27 2003 - 13:37:42 EDT

\forwarded from the LBO-talk list.

Budget Deficit Is Projected
To Grow in 2004, Beyond
CBO Sees Record $480 Million Gap Next Year;
Over 10 Years, Shortfall May Hit $1.4 Trillion

Staff Reporters of WSJ

WASHINGTON -- The Congressional Budget Office said the
budget deficit for the coming fiscal year will be an
estimated $480 billion and that the budget will remain
in the red for most of the next decade.

The government's rapidly-deteriorating finances
already are beginning to have an effect on the economy
by helping to nudge interest rates higher.

The deficit is also likely to become a political issue
as Democrats step up their attacks on President Bush's
handling of the economy. While federal budget deficits
by themselves don't usually move elections, they can
resonate with voters when paired with other economic
concerns, such as high unemployment or recession.

The sheer size of the current deficits is sure to grab
attention this time. The CBO, in its summer update of
budget forecasts, said the government will accumulate
deficits of $1.4 trillion through 2013, a sharp
turnaround from last year's forecast of a $1 trillion
surplus for the 2003-2012 fiscal year period and far
below the 10-year, $5.6 trillion surplus the agency
predicted in 2001.

Over the short term, the CBO said the federal
government will report a total deficit of $401 billion
for the 2003 fiscal year ending Sept. 30 and $480
billion in fiscal 2004.

The agency noted that although the deficits for this
year and next represent records in strict dollar
terms, "they are smaller than the deficits of the
mid-1980s" on a proportional basis, representing about
4% of gross domestic product.

But Democrats were quick to point out that the CBO
baseline estimate by law doesn't include some big new
spending and tax-cut measures that Congress is
considered likely to adopt this year and in future
years. Those will drive the deficits even deeper,
Democrats said.

Among those provisions are extension of many of the
temporary tax cuts that Mr. Bush has pushed through;
the additional cost of a Medicare prescription drug
benefit; and a long-term solution to the growing
problem of the alternative-minimum tax, a measure
designed to tighten loopholes for the wealthy that now
is beginning to affect middle-class taxpayers.

When likely costs of those measures are included, the
deficit for 2004 could climb above $500 billion, data
in the CBO report suggested, and 10-year deficits
could increase substantially.

"As bad as CBO's forecast appears, the true extent of
the problem is even worse," said Rep. John Spratt of
South Carolina, ranking Democrat on the House Budget

With the war on terrorism and a shaky economy
occupying the administration's attention, White House
officials have said the deficit hasn't been a high
priority. Republicans promised to tackle the deficit
problem, chiefly by curbing spending.

"The administration's policy was to fix the economy
first and then get about fixing the deficit," said
Trent Duffy, a spokesman for the White House Office of
Management and Budget. "The economy isn't fixed yet,
but it is picking up steam, so that's step one in the
process. Now we have to turn to serious fiscal

The CBO blamed the rising deficits on a drop in
revenue, which is declining for a third year in a row,
combined with "double-digit growth in discretionary
spending," which includes programs such as
transportation and education. Not all of the revenue
decline is explained by the tax cuts.

In its economic forecast, the CBO said that after a
slow start in the first half of 2003, "the economy now
seems poised to expand at a faster pace." It projects
real gross domestic product growth of 3.8% in the 2004
calendar year.

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