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2004 Deficit to Reach $480 Billion, Report Forecasts

Deficit Projections
_____From the Web_____
Full Report: The Budget and Economic Outlook: An Update Source: Congressional Budget Office
Budget Forecasts
From washingtonpost.com at 3:47 PM

The Congressional Budget Office's baseline budget forecasts for the next 10 years, assuming no changes in current fiscal policy (surpluses are indicated with plus signs; deficits with minus signs):

2004: -$480B
2005: -$341B
2006: -$225B
2007: -$203B
2008: -$197B
2009: -$170B
2010: -$145B
2011: -$9B
2012: +$161B
2013: +$211B
Debt: $1.4 trillion

Permanently extending recent tax cuts would increase the annual deficits and the accumulated debt:

2004: -$477B
2005: -$400B
2006: -$338B
2007: -$319B
2008: -$306B
2009: -$280B
2010: -$253B
2011: -$251B
2012: -$188B
2013: -$150B
Debt: $3 trillion

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By Jonathan Weisman
Washington Post Staff Writer
Wednesday, August 27, 2003; Page A02

The federal government will post a record $480 billion deficit next year and accumulate nearly $1.4 trillion in new debt over the coming decade before climbing back into the black by 2012, the nonpartisan Congressional Budget Office said yesterday.

But if President Bush succeeds in making his tax cuts permanent, the government will run substantial budget deficits as far as the eye can see, the forecast made clear. Add the White House's proposed $400 billion prescription drug benefit, and the deficit would total $324 billion in 2013.

In a departure from past projections, the CBO's update lays out the stark policy choices facing Congress and the president when they return to Washington after Labor Day. Those decisions will establish whether the government quickly returns to the budget surpluses of 1998 through 2001 or accumulates record deficits just when the baby-boom generation begins to retire.

"We cannot do everything; it's the oldest rule in economics," said CBO Director Douglas Holtz-Eakin, who recently left Bush's Council of Economic Advisers. "Choices have to be made, and that will determine our path."

Current policies assume that three successive tax cuts passed since 2001 will all expire by 2011 -- a scenario that many Republicans and Democrats consider politically unlikely. Should the cuts be allowed to vanish, the federal budget would be nearly balanced by 2011 and have a $161 billion surplus by 2012, congressional forecasters say. If the cost of fighting in Iraq and Afghanistan drops quickly, the budget picture would brighten even faster. The CBO's "baseline" deficit projection assumes emergency wartime spending approved by Congress last year will continue indefinitely, at a cost of $818 billion through 2013.

But budget experts say more realistic scenarios are far more bleak. The liberal Center on Budget and Policy Priorities estimated yesterday that deficits over the next 10 years would not drop below $400 billion and would add $5.1 trillion to the federal debt.

The White House remains more optimistic than the CBO. In July, Bush's budget office released projections showing a $455 billion deficit for this year would decline to $62 billion by 2008, absent policy changes the president had requested. The CBO's "baseline" is more optimistic this year, predicting a $401 billion deficit. But it forecasts a $197 billion deficit in 2008, a deficit not much smaller than the White House expects even after Bush's added spending and tax cuts are included.

Extending the tax cuts, as the president and congressional Republicans have vowed to do, would add nearly $1.6 trillion to the federal debt through 2013.

The CBO also assumes spending at Congress's discretion will rise only with the rate of inflation, a trajectory that not even the president envisions. On the military alone, Bush hopes to spend $212 billion above inflation through 2013 -- not including additional war costs in Iraq and elsewhere. If discretionary spending rises with the growth of the economy, the CBO projects that the federal debt would grow by an additional $1.4 trillion.

Another trouble spot is the alternative minimum tax, which was enacted to ensure that the affluent paid some taxes but which increasingly ensnares the middle class. If that tax is revamped -- as many lawmakers say it must be -- it would cost the government another $400 billion, according to the CBO.

Add Congress's plans to create a prescription drug benefit for Medicare, and the deficit in 2013 would stand at $754 billion, by the CBO's projections. And that would have real economic consequences, Holtz-Eakin warned, including higher interest rates, lower national savings and escalating government interest payments that would crowd out other government programs or contribute to spiraling government debt.

Future Congresses will be faced with "extraordinarily excruciating choices" and will invariably have to cut deeply into Social Security and Medicare benefits, predicted Sen. Kent Conrad (N.D.), the Senate Budget Committee's ranking Democrat. If Congress refuses to raise taxes or cut Social Security, Medicare, defense or homeland security, all remaining government programs would have to be cut by 41 percent to balance the budget by 2008, said the Center on Budget and Policy Priorities.

"There's no way to gloss over these numbers," said Rep. John M. Spratt Jr. (S.C.), the ranking Democrat on the House Budget Committee. "We've got a grave problem on our hands, and it won't go away on its own."

Several Republicans yesterday sounded far less concerned.

"Balancing the budget is an important goal of government, but not as important as the safety and prosperity of its citizens," said Hazen Marshall, staff director of the Senate Budget Committee. "Investing in the economy, defeating our enemies and protecting the homeland are expensive but essential priorities. CBO's report shows us the budget can be balanced within a few years if we ignore these priorities, but fortunately this president and Congress have chosen to address them."

Republicans stressed that recent signs of an economic rebound could make the CBO's projections immediately out of date. Congressional forecasters determined their economic projections about seven weeks ago, according to House Budget Committee Republicans. Since then, manufacturing output has improved, job losses appear to have stabilized, consumer confidence has risen and consumer spending has surged.

Still, House Budget Committee Chairman Jim Nussle (R-Iowa) did not try to minimize the government's deteriorating fiscal fortunes. He laid the blame not on tax cuts but on federal spending, which has surged by an average of 7.7 percent per year since 1998.

"This is a spending-driven deficit," Nussle said. "This is not rocket science."

2003 The Washington Post Company

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