http://online.wsj.com/article_print/0,,SB106190528580221900,00.html
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Budget Deficit Is Projected To Grow in 2004, Beyond CBO Sees Record $480 Million Gap Next Year; Over 10 Years, Shortfall May Hit $1.4 Trillion
By ROB WELLS and JOHN D. MCKINNON Staff Reporters of THE WALL STREET JOURNAL
WASHINGTON -- The Congressional Budget Office said the budget deficit for the coming fiscal year will be an estimated $480 billion and that the budget will remain in the red for most of the next decade.
The government's rapidly-deteriorating finances already are beginning to have an effect on the economy by helping to nudge interest rates higher.
The deficit is also likely to become a political issue as Democrats step up their attacks on President Bush's handling of the economy. While federal budget deficits by themselves don't usually move elections, they can resonate with voters when paired with other economic concerns, such as high unemployment or recession.
The sheer size of the current deficits is sure to grab attention this time. The CBO, in its summer update of budget forecasts, said the government will accumulate deficits of $1.4 trillion through 2013, a sharp turnaround from last year's forecast of a $1 trillion surplus for the 2003-2012 fiscal year period and far below the 10-year, $5.6 trillion surplus the agency predicted in 2001.
Over the short term, the CBO said the federal government will report a total deficit of $401 billion for the 2003 fiscal year ending Sept. 30 and $480 billion in fiscal 2004.
The agency noted that although the deficits for this year and next represent records in strict dollar terms, "they are smaller than the deficits of the mid-1980s" on a proportional basis, representing about 4% of gross domestic product.
But Democrats were quick to point out that the CBO baseline estimate by law doesn't include some big new spending and tax-cut measures that Congress is considered likely to adopt this year and in future years. Those will drive the deficits even deeper, Democrats said.
Among those provisions are extension of many of the temporary tax cuts that Mr. Bush has pushed through; the additional cost of a Medicare prescription drug benefit; and a long-term solution to the growing problem of the alternative-minimum tax, a measure designed to tighten loopholes for the wealthy that now is beginning to affect middle-class taxpayers.
When likely costs of those measures are included, the deficit for 2004 could climb above $500 billion, data in the CBO report suggested, and 10-year deficits could increase substantially.
"As bad as CBO's forecast appears, the true extent of the problem is even worse," said Rep. John Spratt of South Carolina, ranking Democrat on the House Budget Committee.
With the war on terrorism and a shaky economy occupying the administration's attention, White House officials have said the deficit hasn't been a high priority. Republicans promised to tackle the deficit problem, chiefly by curbing spending.
"The administration's policy was to fix the economy first and then get about fixing the deficit," said Trent Duffy, a spokesman for the White House Office of Management and Budget. "The economy isn't fixed yet, but it is picking up steam, so that's step one in the process. Now we have to turn to serious fiscal restraint."
The CBO blamed the rising deficits on a drop in revenue, which is declining for a third year in a row, combined with "double-digit growth in discretionary spending," which includes programs such as transportation and education. Not all of the revenue decline is explained by the tax cuts.
In its economic forecast, the CBO said that after a slow start in the first half of 2003, "the economy now seems poised to expand at a faster pace." It projects real gross domestic product growth of 3.8% in the 2004 calendar year.
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