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Can Use CBO Says '04 Deficit Will
Rise to $477 Billion
Extending Tax Cuts Could Double Debt
By Jonathan Weisman
Washington Post Staff Writer
Tuesday,
January 27, 2004; Page A01 The federal deficit will reach $477 billion
this year, up sharply from last year's $375 billion level, and the government
is on track to accumulate nearly $2.4 trillion in additional debt over the next
decade, the nonpartisan Congressional Budget Office said yesterday.
The government's $4 trillion debt could more than double if President Bush
succeeds in making permanent an array of tax cuts that are set to expire by 2011,
the CBO's annual budget report added. Measured against the size of the
economy, this year's deficit -- a record in dollar terms -- will still be smaller
than those in six deficit years under Presidents Ronald Reagan and George H.W.
Bush. CBO officials acknowledged that the cumulative deficit would shrink dramatically
from 2005 to 2014 -- from $1.9 trillion to $785 billion -- if all spending in
Iraq and Afghanistan were to end this year. That is a scenario the White House
and Congress do not envision. Where the deficit goes from here, the CBO
said, will depend in part on a major decision facing Congress: whether to follow
Bush's admonitions and make permanent the $1.7 trillion in tax cuts passed in
2001 and 2003, or to let them expire by 2011. If they do expire, the 2004
peak deficit would gradually decline until the books balance in 2014. But if they
are extended, the government would continue to run large deficits well into the
next decade. "If you look forward, sustained, large deficits in the face
of a fully operating economy will have economic consequences," warned CBO Director
Douglas Holtz-Eakin, a former economist in the Bush White House. Regardless
of those future decisions, the government's long-term finances have worsened considerably
in the past six months, largely because of the war in Iraq and passage of the
$400 billion law adding a prescription drug benefit to Medicare. In August, congressional
forecasters predicted a 10-year deficit of $1.4 trillion through 2013. That figure
has jumped nearly a trillion dollars since then. And those deficits will
persist, even though the CBO forecasts robust economic growth of 4.8 percent this
year and 4.2 percent in 2005. "CBO's projections confirm that deficits
loom far into the future," said Rep. John M. Spratt Jr. (S.C.), ranking Democrat
on the House Budget Committee. Treasury Secretary John W. Snow, in a speech
delivered via satellite to a conference in London, said the administration remains
committed to cutting the deficit in half over the next five years. "Make no mistake,
President Bush is serious about the deficit," Snow said. Under the CBO's
forecast, the $477 billion deficit of 2004 would reach $268 billion in 2009, not
quite half the 2004 level. White House officials cautioned that the CBO
may have inflated its long-term deficit figure. By law, the agency had to assume
that this year's $87 billion spending in Iraq and Afghanistan would continue at
that level through the next 10 years. A White House official said the president's
own deficit forecast will look "substantially different" when he releases his
2005 budget on Monday. That forecast will go out only five years, in effect omitting
the cost of extending the tax cuts. But the official said longer-range forecasts
are more difficult. By most measures, the prospects appear bleak, and Holtz-Eakin
has put the future of the Bush tax cuts at the center of the budget battle. Maintaining
the tax cuts would improve the labor market and increase business investment,
he said, but the attendant budget deficits would lower national savings, reduce
economic productivity and ultimately curtail economic growth. "The cumulative
corrosive impacts of sustained deficits in the face of a full-employment economy"
would, on balance, make the extension of the tax cuts "a modestly negative" policy
choice, he said. Even some Republicans are increasingly nervous about the
tide of red ink. The chairmen of the House and Senate budget committees underscored
the CBO's optimistic assessment of the economy, but they also said more would
have to be done about the deficit. "Last year, we invested in two priorities,
winning the war on terrorism and strengthening the economy," said Senate Budget
Committee Chairman Don Nickles (R-Okla.). "But Congress must show fiscal discipline
moving forward. The deficit projection for this year is expected, but not acceptable."
Bush has said he will tackle the deficit by controlling spending of programs
not related to defense or homeland security. But with his planned increases in
security spending, Bush anticipates total spending to increase by 4 percent next
year, a larger increase than the CBO is anticipating. Even if all spending at
Congress's discretion were to be frozen at this year's levels, the government
would still run a $776 billion deficit over the next 10 years. If spending were
frozen and the tax cuts were extended, that deficit would top $2.3 trillion. And
by 2014, the retiring baby boom generation will be affecting the deficit in earnest.
Medicare alone will grow by an average rate of 9 percent each year over the next
decade. By 2014, Social Security, Medicare and Medicaid will consume half the
federal budget, up from 40 percent this year. Snow again yesterday blamed
the sluggish economy, the Sept. 11, 2001, terrorist attacks and the wars in Iraq
and Afghanistan for the dramatic turnaround. But the CBO's new forecasts make
it clear that economic growth alone will not bring the budget into balance, when
coupled with the president's tax policies. Continue
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