Deficit Forecast Collides with Bush's Plans ; Projections of $477 Billion Budget Gap Sharpen Debate over Extending Tax Cuts

By Peter Grier writer of The Christian Science Monitor | The Christian Science Monitor, January 28, 2004 | Go to article overview

Deficit Forecast Collides with Bush's Plans ; Projections of $477 Billion Budget Gap Sharpen Debate over Extending Tax Cuts


Peter Grier writer of The Christian Science Monitor, The Christian Science Monitor


The nation's fiscal outlook has now come full circle in three years: from sunny surplus to deficit overcast as far as economists can see.

Things have become so bad that some analysts believe President Bush may be starting to scale back aspects of his domestic spending agenda. For instance, Bush's State of the Union speech included no mention of his proposal to send men to Mars, an expensive proposition that had received a cool reception in Congress.

But Bush has only redoubled calls to make his tax cuts permanent, and there's increasing evidence that such a move might make it extremely difficult to fulfill another of his pledges - halving the deficit by 2009.

"Extending the tax cuts is the largest single policy change they're talking about - that alone would expand the deficit by $2.2 trillion over 10 years," says Robert Bixby, executive director of the Concord Coalition, a fiscal watchdog group in Washington.

A new forecast issued by the Congressional Budget Office (CBO) on Monday emphasized the scale of the deficit problems ahead.

This year's deficit will be a record in dollar terms, at $477 billion, according to CBO. That's equal to about 4.5 percent of the nation's gross domestic product.

Economists consider the size of the deficit as percentage of GDP to be an important measure of what the nation can afford. By this standard the record US deficit was that of 1983, at around 6 percent of GDP. Without any changes in spending or tax policy, the deficit might gradually fade away, according to CBO's new numbers. By 2014, the budget might actually return to surplus.

But Washington abhors legislative stasis, and it's virtually certain that the White House will propose and Congress will pass major bills in coming years. Making permanent all of the Bush tax cuts now set to expire would result in deficits of around $300 billon a year for the foreseeable future, absent spending cuts.

Curbing a scheduled increase in the alternative minimum tax would add around $25 billion a year to the deficit. Expansion of the just- passed Medicare prescription drug benefit might add billions more - as might a manned mission to Mars.

Since the CBO last issued budget projections in August, its 10- year accumulated deficit estimate has increased by $1 trillion - mostly due to spending changes. "About 70 percent of that [increase] results from new legislation, such as the Medicare law," says CBO's report.

The Bush administration explains the huge deficits as primarily the result of the recent recession. Furthermore, they see the tax cuts as providing needed stimulus to a slow recovery and encouraging business investment that will produce new jobs. …

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