Budget analysts predict decade of deficits

WASHINGTON -- The federal government is in store for at least eight more years of budget deficits, including a record $480 billion shortfall in 2004, congressional budget analysts said Tuesday.

The Congressional Budget Office also warned that the numbers will become more dire if the White House gets its way on tax cuts and Congress fails to rein in spending.

They said the budget outlook "has worsened substantially" since its last review in March, when it put next year's deficit at $200 billion. Much of that is the result of subsequent acts of Congress to cut taxes and increase spending for defense and the war in Iraq, it said.

The CBO, a nonpartisan group, said the budget will edge back into the black in 2012 and 2013, but will record an accumulated deficit of almost $1.4 trillion in the 2004-2013 period. In March, it predicted a surplus of $891 billion in that period.

Democrats seized on the report as proof that the Bush administration policy of cutting taxes while demanding more for defense and homeland security was threatening the nation's economic viability.

"I think this is a moral problem more than an economic problem," said Rep. John Spratt of South Carolina, top Democrat on the House Budget Committee.

"We've got to hold the line on spending," said House Budget Committee Chairman Jim Nussle, R-Iowa.

The White House's Office of Management and Budget has predicted that, under the president's budget plans, a deficit of $475 billion will be halved to $213 billion in 2007, even if further tax cuts are enacted and a prescription drug benefit is approved for seniors.

By comparison, the defense budget this year is about $400 billion and some $493 billion in Social Security checks are expected to be received by 46 million seniors next year.

CBO director Douglas Holtz-Eakin made clear that his office's estimates could be affected by "an enormous range of possible outcomes."

The estimates do not take into account future policy changes, such as the $400 billion Medicare prescription drug plan Congress is working on, and assume that Bush tax cuts scheduled to expire in 2010 will not be extended, as is likely to happen. Costs of the Iraqi operation are based solely on an emergency spending bill passed this year, rather than any long-range projections.

The CBO said the $1.4 trillion deficit over the next decade would grow by $1.6 trillion if the tax cuts are extended, by $400 billion with a prescription drug benefit and by another $400 billion if steps are taken to revise the "alternative minimum tax," started in 1970 to prevent wealthy individuals from dodging income tax.

but, because it is not indexed for inflation, affecting more and more middle-class families.

The deficit would be worse if Congress continues to increase spending at a level above the inflation rate.

If all these possibilities occur, Holtz-Eakin said, the deficit could more than double to some 7 percent of gross domestic product, exceeding record levels of the 1980s.

"These choices do matter," he said. "We cannot do everything simultaneously."

The deficit in monetary terms hit a record $290.4 billion in 1992, when the first President Bush was in office. In 1998 the government returned to the black for the first time in 39 years and recorded surpluses through 2001. In 2002 the deficit was $158 billion and this fiscal year, ending Sept. 30, the CBO says it will reach $401 billion. In March the CBO estimated this year's deficit at $246 billion.

Nussle said the CBO report doesn't reflect recent improvements in the economy and questioned the CBO assumptions about the costs of the Iraq conflict. He also said the tax cuts passed the last three years have been responsible for creating jobs and fueling the economic recovery.

But Sen. Kent Conrad of North Dakota, top Democrat on the Senate Budget Committee, said the report increased the need for Bush to come up with a long-range plan to get the economy back on track. With baby boomers nearing retirement and the Social Security surplus, now used to offset part of the deficit, running dry, a deficit "of this magnitude coming at this time fundamentally threatens the long-term economic security of this country," he said.

House Budget Committee Democrats predicted that, with probable policy changes such as extending tax cuts and increasing defense spending, the deficit would be $465 billion next year, never go below $295 billion and reach a total of $3.4 trillion in the 2004-2013 period.

Robert Greenstein of the Center on Budget and Policy Priorities. a liberal advocacy group, said that, without tax increases and no cuts in Social Security, defense and homeland security, all other federal programs would have to be cut by 40 percent to attain a balanced budget by 2008.

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On the Net:

CBO: http://www.cbo.gov

Budget Committee Democrats: http:www.house.gov/budget--democrats/