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  Daily Briefing  
September 9, 2003

Administration officials downplay Iraq impact on deficit

By Keith Koffler, CongressDaily

The administration will spend during fiscal 2004 only $50 billion to $60 billion of President Bush's $87 billion supplemental spending request for Iraq and Afghanistan, resulting in a rise of the Office of Management and Budget's projected projected federal deficit to no more than $535 billion from the currently predicted $475 billion.

The increase nevertheless plunges the deficit even further into record territory, increasing the projection for 2004 from about 4.2 percent of gross domestic product to 4.7 percent, according to senior officials who briefed reporters by telephone Monday afternoon. One official argued that the increase would still leave the deficit at a level that does not harm the economy.

The official said Bush will not seek to balance the proposal with either offsetting spending cuts or a rollback of his tax cuts. The official asserted that much of the new funding is one-time spending that will not be incorporated into the budget baseline.

The new deficit level is "manageable," the official said, if Congress holds the line on discretionary spending and enacts pro-growth policies that the administration believes will help increase revenues and ameliorate the deficit.

In a statement sure to rankle Democrats, the official suggested that one such pro-growth policy would be to make the 2001 tax cut permanent, a strategy that would—initially, at least—add hundreds of billions of dollars to the deficit after 2010, when the tax cut's provisions expire.

The senior officials said $62.5 billion appropriated by Congress this spring for war-related costs will be exhausted either by the close of this fiscal year or early next month.

However, while Bush wants Congress to act with dispatch on the supplemental request—and to certainly complete it before recessing—the need for the money does not arise before the end of the calendar year, one official said.

But the official declined to say when Bush would officially submit the proposal, indicating that aides were still tinkering with some of the finer points.

The official indicated that the administration will seek "flexibility" from Congress in how a substantial portion of the money is spent.

The senior officials acknowledged that the proposal is larger than anticipated months ago. They blamed the unexpectedly miserable state in which Iraq's previous regime left the country.

"It's difficult to underestimate the amount of underinvestment in Iraq's infrastructure," said one official.

One official said Iraqi energy generation should be at prewar levels by the end of September, but that output will still have to increase to meet the country's current needs.

But the officials indicated that $20 billion of the proposal requested to rebuild Iraq should help get the country up and running to the point where Iraqis can then take over a substantial role themselves.

The $20 billion is part of $50 billion to $75 billion the administration estimates is needed for Iraq's infrastructure. Other funding will come from oil revenues, which the officials estimated will total $12.1 billion in 2004 and $20 billion in both 2005 and 2006.

But the administration is also seeking "substantial" contributions from other countries.

One official said that since the $50 billion to $75 billion—as well as the $20 billion in U.S. money that will be part of it—is a type of "capital investment" needed to get Iraq on a solid footing, the money should not be tagged to any specific time period.

The official said he expected that the request would include language asking that disbursement of the $20 billion not be limited to 2004, though the administration would seek to spend it during 2004 if possible, in order to improve conditions rapidly.

The official reiterated earlier comments by White House Press Secretary Scott McClellan, who said he does not expect further such request for 2004.

"I think you can never say never, but we do not anticipate coming back for supplemental requests for Iraq or Afghanistan either on the military side or the reconstruction side for fiscal '04," the official said.

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  • White House says $87B should cover fiscal 2004 costs   (09/08/03)
  • Bush expected to detail Iraq reconstruction expenses   (09/03/03)
  • White House forecasts record deficit of $455B this year   (07/15/03)
  • White House planning to delay war spending request   (03/14/03)
  • Uncertain war costs hamper budget planning   (03/05/03)

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