Congressional Budget Office projects continuing deficits

WASHINGTON -- The most dramatic drop in tax revenue since 1946 has put the government into deficit for the next three years and has shriveled the projected 10-year federal budget surplus by 60 percent in just five months, the Congressional Budget Office reported Tuesday.

The CBO's influential mid-year budget forecast underscores the dramatic deterioration of the government's fiscal health.

As recently as March, congressional forecasters had predicted the government would run a much larger surplus -- $2.4 trillion -- than the $1 trillion total that the CBO now foresees between 2003 and 2012. That number has shrunk because of a plunge in tax receipts, the likes of which has not been seen since the repeal of World War II surtaxes 56 years ago, said CBO Director Dan Crippen.

Economists appeared to be at a loss to explain it. Crippen merely called it "astounding."

The report diverges significantly from the White House's forecast released last month. It comes as President Bush prepares to unveil a new round of tax cuts to stimulate the stock market and pushes Congress to make last year's 10-year, $1.35 trillion tax cut permanent.

The CBO report may have undercut that campaign. According to its projections, nearly all the 10-year surplus will materialize after 2010, when the president's tax cut is scheduled to expire.

Democrats pounced on the new projections, accusing the White House of sugar-coating the burgeoning budget problem. Republicans said the CBO's numbers only underscore the need for Congress to control spending.

"The president believes the lesson from today's CBO numbers is that Congress needs to hold the line on spending," White House spokesman Ari Fleischer said from the president's ranch in Crawford, Texas. "And if Congress won't do it, the president will do it for Congress."

Despite partisan rhetoric, neither party downplayed the deterioration in the government's long-term financial position. Crippen pointedly did not attribute that decline simply to the economic slowdown or the Sept. 11 terrorist attacks.

This year's $131 billion plunge in tax revenue was considerably sharper than the economy's own fall, just as the growth in tax receipts was more robust in the late 1990s than was the economy's growth.

Just last year, CBO projected a $5.6 trillion surplus between 2002 and 2011. That figure allowed Bush to say his 10-year, $1.35 trillion tax cut would leave room for a prescription drug benefit for seniors and a significant effort to reduce the federal debt.

Now, that $5.6 trillion projection has shrunk to $336 billion over the same period.

From 2003 to 2012, the CBO's surplus projection jumps to $1 trillion, but that figure is considerably more pessimistic that the administration's forecast of $2.5 trillion over the same timeframe. The White House forecasted in July that if spending were strictly controlled in other areas, Congress could make last

year's $1.35 trillion tax cut permanent, raise defense spending substantially, and pass legislation to pick up some of the cost of health insurance and senior

citizens' prescription drugs--and still squeak out a slim, $41 billion surplus through 2007.

Congressional forecasters--and even White House officials--now doubt those numbers. Of CBO's $1 trillion, 10-year surplus forecast, $845 billion would

come after the tax cut expires after 2010. All of that money would come from surplus Social Security taxes. And that trillion-dollar figure does not include

large military increases or a prescription drug benefit.

Besides, Crippen said, his agency was privy to important economic information--including July's stock market swoon and a broad re-estimate of recent

economic growth rates--that the White House Office of Management and Budget did not have when OMB issued its forecast last month.

``They would probably change their estimate if they had that luxury,'' Crippen told reporters.

White House Budget Director Mitchell Daniels Jr. conceded the point. CBO's projections are based on new economic data and ``more recent information

on the decline in revenue collection,'' he said. ``OMB and the Treasury Department face the same challenge in continuing to look for ways to achieve greater

accuracy in forecasting.''

Democrats were not so charitable. Senate Budget Committee Chairman Kent Conrad, D-N.D., accused the White House of ``Enron-type accounting.'' The

administration's forecasts for economic growth and unemployment, both for this year and next, are more positive than either CBO's or the ``Blue Chip''

consensus figures of private economists. The administration also predicts the government will receive $638 billion more in revenues through 2012 than

CBO projects, and that spending will be $634 billion lower.

``President Bush still refuses to present any serious plan to get the nation's finances back in order,'' charged House Minority Leader Richard Gephardt,

D-Mo.

Referring to President Bush's push to make last year's tax cuts permanent while passing more tax cuts, Conrad said, ``he certainly has no plan to right the

ship. In fact, he's punching more holes in the hull as the ship goes down.''

By Jim Abrams

The Associated Press

WASHINGTON -- The federal government's budget will slide into the red for four years, government analysts said Tuesday in a report sure to vault tax and spending policies into the election-year battle for control of Congress.

Democrats and Republicans accused each other of putting the government on a path toward fiscal disaster after four years of budget surpluses. Just six months ago, the analysts were predicting a return to surpluses next year.

The nonpartisan Congressional Budget Office said Tuesday that surpluses like the $237 billion recorded the last year of President Clinton's tenure won't resume until President Bush's tax cuts expire in 2010, as current law requires -- and only if Congress keeps a lid on military and social spending.

Republicans, who want to make the tax cuts permanent, said the CBO numbers are not surprising in light of the recession and the costs of the war on terrorism. But they insisted that Congress must put a tight hold on future spending.

Democrats blame much of the budget shortfalls on the $1.35 trillion, 10-year tax cut enacted last year, and warned that Republican policies could bankrupt the government when today's baby boomers start collecting Medicare and Social Security benefits a decade from now.

"The clock is ticking away, the baby boomers are marching toward their retirement," said Rep. John Spratt of South Carolina, top Democrat on the House Budget Committee.

That committee's chairman, Republican Rep. Jim Nussle of Iowa, said the CBO numbers presented "a clear choice" between Republicans who want to rein in spending and Democrats who would "send us down a path to much deeper deficits" with more spending.

From Bush's ranch in Crawford, Texas, White House press secretary Ari Fleischer said: "The president believes the lesson from today's CBO numbers is that Congress needs to hold the line on spending. And if Congress won't do it, the president will do it for Congress."

In January last year, the CBO and the White House Office of Management and Budget both predicted a budget surplus, with the inclusion of Social Security funds, of some $5.6 trillion through 2011. But the recession, repercussions from the Sept. 11 attacks, an unexpectedly large decline in tax revenues and double-digit percentage growth in federal spending have all but eliminated that projection.

"Through a combination of wrongheaded fiscal policy and tentative economic leadership, we have now suffered one of the most dramatic fiscal turnarounds in American history," said Senate Majority Leader Tom Daschle, D-S.D.

The CBO now estimates the government will be $157 billion in the red in fiscal 2002, compared with a $127 billion surplus in fiscal 2001, and that the deficit will hit $145 billion next year. Fiscal 2002 runs through Sept. 30 this year.

It said the government should creep back into the black with a $15 billion surplus in 2006 and could accumulate a $1 trillion surplus for the 2003-2012 period if there are no big increases in spending and if the tax cuts are allowed to expire as scheduled.

Expiring tax provisions from last year's tax cuts and other efforts to stimulate the economy total some $956 billion, nearly equaling the projected surplus, the CBO said.

Nussle disputed those figures, saying they were mere projections and that the only "definite, for sure thing" is that increased spending will undermine efforts to balance the budget.

The CBO, in its last projection in March, estimated the 10-year surplus at $2.4 trillion. CBO Director Dan Crippen said the re-evaluation was due mainly to a precipitous drop-off in revenues as the stock market fell, capital gains returns decreased and corporate profits went down.

The new CBO figures were also more pessimistic than the OMB, which said in July that the surplus would total $2.3 trillion in the 2003-12 period under current tax and spending policies. The OMB said the federal government could break even as early as fiscal 2004.

The CBO said it used more up-to-date figures on reductions in revenues and a resulting $454 billion increase in interest payments on the national debt, explaining part of the difference between the CBO and OMB estimates.

The surpluses projected by both offices rely on the Social Security trust fund. The CBO said the general budget will actually be $1.5 trillion in the red over the next decade, but will be rescued by the expected $2.5 trillion surplus in what people pay into the Social Security fund. Democrats note that both parties had promised not to dip into the trust fund to pay for other government programs.

Senate Budget Committee Chairman Kent Conrad, D-N.D., blamed tax cuts for reversal of fortunes, and said problems will multiply in the next decade as the government faces more revenue declines and a jump in Social Security and Medicare costs.

"It's a complete disaster for the long-term fiscal health of this country," he said.

But OMB Director Mitch Daniels said the CBO report shows the deficit will turn back toward balance "with the right choices. President Bush's plan to balance the budget is straightforward: revive our economy, win the war against terrorism and restrain spending."

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On the Net

CBO: http://www.cbo.gov/

OMB: http://www.omb.gov/