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
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
"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
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
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