Congressional analyst lowers deficit forecast

WASHINGTON -- The Congressional Budget Office says it believes its March projection for a federal deficit of $477 billion this year was too high, though the red ink still seems all but certain to set a new record.

The budget office, Congress' nonpartisan fiscal analyst, provided no new figure and won't formally update its estimate until summer. Nonetheless, the improved outlook paralleled Wall Street firms that have revised their forecasts for the better, marking the first time in several years that experts are saying their earlier estimates were too gloomy.

Last year's $374 billion deficit stands as the worst ever in dollar terms.

The lower projection, prompted mostly by higher than expected federal revenue, means mixed election-year news for President Bush. Though this year's shortfall will be better than envisioned earlier, Bush will still have presided over huge and growing deficits each of his three years in office following four straight annual surpluses under President Clinton.

Sen. Kent Conrad of North Dakota, top Democrat on the Senate Budget Committee, said Bush caused a "fiscal disaster" by the tax cuts he has won.

"If anything, the deficit estimates we are seeing today highlight the stunning failure of President Bush's fiscal leadership," Conrad said.

Republicans cited the improved forecast -- along with Friday's report of job growth -- as evidence of exactly the opposite.

"This is welcome news that the tax reduction that the president pushed and we passed last year is working," Senate Budget Chairman Don Nickles, R-Okla., said in written comments. "Jobs are up, the stock market is up, revenues are up, and the deficit is declining."

Through the first seven months of the government's budget year, the deficit is already at $284 billion, the budget office said. That is $82 billion worse than the same period last year.

"Although the deficit will widen as the year goes on, recent trends suggest that the deficit in 2004 will be less than the $477 billion that CBO projected in March," said the report, which was issued on Thursday.

The budget office said revenues are running $30 billion to $40 billion over its earlier expectations, including stronger than expected collections of individual and corporate taxes.

Private budget analysts have also begun edging their budget forecasts downward, though they remain in record-setting territory.

Jim Glassman, senior economist for J.P. Morgan and Co., said his estimate for this year's deficit has fallen from $475 billion to $450 billion. Susan Hering, senior economist for the investment bank UBS, said she has made the same reduction.

Ethan Harris, chief U.S. economist for Lehman Bros., said he dropped his projected deficit for 2004 by $30 billion Friday to $445 billion. And Christopher Wiegand, economist for Citigroup Inc., said he is projecting a $370 billion deficit this year, down from a $470 billion estimate in January.

The White House's last deficit forecast, made in February, was for $521 billion. It will issue a new one this summer.

Democrats have accused the administration of making an artificially high projection so it can claim credit for an improvement when the final numbers come in. White House officials have denied that.

The longer-term budget picture remains a looming crisis because the huge baby boom generation will begin drawing Social Security and Medicare benefits in a few years. In a speech on Thursday, Federal Reserve Chairman Alan Greenspan called the fiscal problems "a significant obstacle to long-term stability."