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Estimate 480b 2004 deficit { August 26 2003 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2003/08/26/business/26CND-BUDGET.htmlhttp://www.nytimes.com/2003/08/26/business/26CND-BUDGET.html
August 26, 2003
Budget Office Says 10 Years of Deficits Could Total $5 Trillion
By EDMUND L. ANDREWS
WASHINGTON, Aug. 26 — The nonpartisan Congressional Budget Office said today that federal budget deficits could total $5 trillion over the next 10 years if discretionary spending grows in line with the economy and if Congress enacts programs strongly supported by President Bush.
The accumulated shortfall would be far higher than what the White House suggested last month, when it predicted that the budget deficit would hit $475 billion next year and decline significantly after that.
Today's estimate put the 2004 deficit at $480 billion, making the shortfall equal to about 4.2 percent of the nation's gross domestic product. That is proportionately lower than some deficits reached in the 1980's.
The new 10-year projections are hypothetical, but they are in many respects conservative. They are based primarily on the cost of three programs that President Bush and the Republican majority in Congress broadly support.
That agenda includes making almost all the tax cuts of the last three years permanent, which Congressional analysts said would cost $1.5 trillion over 10 years. It also includes the cost of a new prescription drug program for senior citizens, supported by Republicans and Democrats, that would cost $400 billion.
And it includes the cost of revising the alternative minimum tax, which under current law is expected to force tens of millions of taxpayers to pay much higher taxes as their incomes rise with inflation. That change, supported by Republicans and Democrats alike, would cost an additional $400 billion.
On the spending side, the Congressional Budget Office also estimated the consequences if discretionary spending on programs from defense to education that are not mandated by prior laws — like Social Security benefits — rises faster than the rate of inflation.
Discretionary spending has climbed by about 7 percent annually for the last five years, far faster than the rate of inflation. If such spending were to keep rising at that pace, the Congressional agency said, the projected budget deficit would swell by an additional $2.8 trillion by 2013.
But even if spending just rises in line with the rate of economic growth, about 3 percent a year above the rate of inflation, then it would widen the 10-year shortfall by $1.4 trillion.
Taken together, the new report is almost certain to rekindle a fierce debate in Congress as well as on the campaign trail as the presidential election race heats up in the months ahead.
Democrats immediately pounded on today's report to charge that Mr. Bush and his Republican allies are leading the country into a fiscal nightmare just as today's baby-boom generation begins to approach retirement age and start drawing heavily on Social Security and Medicare benefits.
"We've got a grave problem on our hands, and it will not correct itself," Representative John Spratt Jr. of South Caroline, the ranking Democrat on the House Budget Committee, said at a Capitol Hill news conference. "If these numbers show anything, once they're adjusted for reality, this problem is a structural problem, not a cyclical deficit. It won't go away with growth, won't fade away as the economy recovers, it won't change until we change it with a different set of policies than those that are now being applied."
But Republicans said the budget office's report merely confirmed the need to reduce government spending and start thinking about bold new revisions in the big entitlement programs.
To be sure, budget forecasts have been notoriously unreliable in the last several years. During the late 1990's, Congressional forecasters and the White House both failed to anticipate the flood of tax revenue generated by the economic boom and the stock market bubble. Similarly, neither Congress nor the Bush administration predicted the alarming drop in tax revenue after the stock market bubble burst three years ago.
Douglas Holtz-Eakin, director of the Congressional Budget Office and previously chief economist on President Bush's Council of Economic Advisers, stressed today that the agency's projections were not forecasts so much as projections of the consequences of different policy choices.
Indeed, one chart in today's report attempted to chart the uncertainty, which shows a range of deficit forecast so wide after 2003 that it looks like a Chinese fan.
Nevertheless, today's estimates are broadly in line with those by analysts from across the political spectrum. In June, economists at Goldman Sachs predicted that the federal government would run a 10-year deficit of $4.5 trillion. Congressional Democrats have come up with a similar number, based on similar assumptions.
"Among careful budget analysts there is not a great deal of controversy about what the forecast looks like, and it is grim," said Robert Greenstein, director of the Center on Budget and Policy Priorities, a liberal policy research group in Washington.
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