Federal Budget

$2.4 trillion deficit is in the forecast
By Peter G. Gosselin Los Angeles Times: Jan. 27, 2004

WASHINGTON Federal budget deficits are expected to total $2.4 trillion over the coming decade, the Congressional Budget Office said Monday, almost $1 trillion more than the agency estimated only six months ago.

If Congress heeds President Bush's call and makes the tax cuts of the past three years permanent, that total could jump to more than $5 trillion, according to CBO figures, a development that would make it extremely difficult for Bush to keep his pledge to cut the deficit in half by the end of a second term.
About two thirds of the extra $1 trillion in red ink is the result of recently passed legislation, especially the new Medicare prescription drug measure. Most of the rest is due to changes in the CBO's economic outlook, including a reduction in its inflation estimate that, paradoxically, would cause future government revenues to shrink. The congressional agency's new deficit estimate, an annual event, comes as Bush prepares to unveil his election year budget and seems certain to add fuel to an already heated presidential campaign issue. Among the figures Bush critics are likely to zero in on: Federal revenues as a fraction of the country's gross domestic product have fallen to levels not seen since Harry Truman was president.
Economists believe that measuring almost every element of the budget, including deficits, against GDP offers the best gauge of their size because it puts costs against some indication of the nation's ability to pay. Critics say the decline in revenues as a fraction of GDP shows that the president's tax cuts are starving the government of funds. Democrats 'are already using the deficit to contrast Bush's economic and budget record with that of President Clinton, who managed a string of budget surpluses during his final years: in office, the first in nearly three decades. But deficits are not simply a party versus party issue; they create fissures in both parties between "hawks" who fear that federal overspending could cause substantial economic damage and those who think the problem is overblown.
"The nation's fiscal outlook is deteriorating," said Robert L. Bixby, executive director of the Concord Coalition, a bipartisan budget watchdog organization in Arlington, Va. "The politically unappealing reality staring at those on Capitol Hill is that it will take a significant slowing of spending growth or new revenues or, most likely, both to return the budget to balance," added Maya MacGuineas, executive director of the Committee for a Responsible Federal Budget, a similar group.
The CBO, Congress’ non-partisan fiscal analyst, predicted that the deficit for the 2004 fiscal year, which runs through Sept. 30, would hit $477 billion a record in dollar terms and substantially higher than last year's $375 billion shortfall. But at 4.2 percent of GDP, it is still below the gargantuan deficits of the 1980s. The new projection was similar to the agency's estimate of last August After this year, the agency predicted, deficits will begin shrinking to $362 billion in fiscal 2005, $269 billion in 2006 and so forth until the end of the decade, then drop precipitously and' actually show a nearly $13 billion surplus by 2014.
But agency officials readily acknowledged that their projections were based on a number of heroic assumptions, chief among them that Congress and the president add not a single spending program or approve any more tax cuts.