Federal deficit to set record

WASHINGTON -- The federal deficit will swell to a record $422 billion this election year but fall short of even more dire forecasts, Congress' top budget analysts projected Tuesday in a report that became instant fodder for both political parties.

The nonpartisan Congressional Budget Office said the shortfall would shrink to $348 billion next year -- still the third worst ever in dollar terms. Last year's $375 billion gap was the previous record.

The projections reverberated on the campaign trail, where Democrats immediately criticized President Bush for what will be the fourth consecutive year in which the budget's bottom line has worsened. They linked the figure to the 900,000 net job loss since Bush took office and the recent announcement that Medicare's premiums will rise by 17 percent next year.

"W. stands for wrong, the wrong direction for America," said Democratic presidential candidate Sen. John Kerry of Massachusetts, invoking Bush's middle initial.

A $422 billion deficit would be the biggest dollar amount in history, though the shortfalls of World War II were larger when the figures are adjusted to even out the impact of inflation.

"This is absolutely an unsustainable course for the country," said Sen. Kent Conrad of North Dakota, the Senate Budget Committee's top Democrat.

But Republicans noted that the forecast was better than the $477 billion deficit congressional analysts predicted in March and the $445 billion gap the White House expected in July. Coupled with other recent data, they said, the new numbers were evidence of an improving economy.

The improvement is "a sign of the economic growth that is a result of President Bush's leadership on tax relief," said Tim Adams, policy director for the Bush campaign.

Such a deficit would equal 3.6 percent of the U.S. economy, well below the 6 percent peak reached under President Reagan. Many economists consider that ratio to be the most important measure of the deficit's economic impact.

"Our policies are working to create a stronger economy, more jobs and a lower deficit," said House Budget Committee chairman Jim Nussle, R-Iowa.

The $422 billion deficit forecast should prove largely accurate because the government's budget year has less than four weeks left, running through Sept. 30. It does not include money Bush wants to help Florida recover from recent hurricanes -- $2 billion he requested Monday and another proposal expected soon.

The government is expected to spend nearly $2.3 trillion this year, which means it will borrow about one of every five dollars it spends.

The congressional report envisions shortfalls gradually easing to $65 billion by 2014 for a 10-year total of nearly $2.3 trillion. But the analysts noted that their forecast, meant as a neutral measuring stick, assumed no changes in taxes or spending for the next decade.

Expensive steps ignored

That left them ignoring expensive steps that would worsen deficits. The report said preventing Bush's tax cuts from expiring -- as Bush has asked Congress to do -- would add $2.2 trillion to the shortfalls through 2014, including the government's added borrowing costs. Easing the alternative minimum tax's impact on middle-income earners would cost another $435 billion.

On the other hand, the budget office -- as legally required -- assumed that extra money provided last year for wars in Iraq and Afghanistan would be repeated annually throughout the decade. That accounted for more than $1.4 trillion in red ink over the period, including interest, the report said.

Though the budget office forecast slightly slower economic expansion than it did early this year, it said it still expects healthy growth and job creation because the economy is in "a phase of investment-led growth."

But it also warned that the budget's long-term health remained threatened by the looming retirement of the baby boom generation, which will draw heavily on Social Security and other programs and "pose an obstacle to higher standards of living."

That led the bipartisan Concord Coalition, a group that advocates balanced budgets, to call the report "a timely reminder that the deficit is a serious problem needing serious attention."

Despite spending the 1980s and 1990s railing against the evils of budget shortfalls, Republicans say fighting wars in Iraq and Afghanistan, battling terrorism and righting the economy are higher priorities.

Democrats say the shortfalls are forcing policy-makers to shortchange schools, domestic security and other priorities, while driving up federal borrowing costs. And they say deficits have worsened because of the tax cuts Bush and his GOP allies pushed through Congress.