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CBO Projects Four Years of Deficits Before Surplus Returns

This year's budget deficit will top out at $157 billion, according to the nonpartisan Congressional Budget Office. That's less than the $165 billion projected by the White House Office of Management and Budget last month.

The CBO said the deficit will total $145 billion next year and continue for two more years after that before the government again starts collecting more money than it spends in 2006.

"A sharp decline in tax revenues, coupled with double digit growth in spending" is responsible for this year's deficit, the budget office said.

But predicting the economy is difficult right now, particularly with a slow recovery from recession, a weak stock market and the war on terrorism.

"We have had the largest drop in revenue -- actual literal drop in revenue -- since 1946. It just is an astounding decrease in how much federal revenue's being produced right now," said CBO Director Dan Crippen. "Until we know more about where that money went, we won't be able to tell you with any certainty what we think happened or may to the future."

Democrats, led by Rep. John Spratt, of South Carolina, say they know what happened -- President Bush squandered the earlier surplus and forced the government into borrowing Social Security funds because he insisted on ushering in a 10-year, $1.35 trillion tax cut.

"Without the tax cuts, the budget would not invade the Social Security trust fund surplus over the 10-year period,'' Spratt said.

OMB Director Mitch Daniels said that "with the right choices," including Bush's efforts to fight terrorism, revive the economy and restrain spending, the numbers will "turn back toward balanced budgets."

The debate over whether the surplus was squandered or well spent is likely to be a factor in this fall's midterm elections, with the parties blaming each other for frittering away a budget surplus that only 18 months ago was estimated at $5.6 trillion through 2011 if Social Security money is included.

The Bush administration and congressional Republicans are pushing hard to make tax cuts -- including a marriage penalty tax cut and estate tax cuts -- permanent. But they may find it hard going since the CBO says that if the tax cuts are allowed to expire in 2011, the way last year's law says, then the budget will return to substantial surpluses between 2010 and 2012.

The OMB, however, said that if it makes tax cuts permanent and increases defense spending the government will be back to surpluses by 2005 and will record a cumulative surplus of $827 billion between 2003 and 2012. Without those changes, it predicts the surplus will return in 2004 and reach $2.3 trillion over 10 years, $1.3 trillion more than the CBO prediction.

Neither side accounts future spending, including an ambitious drug prescription coverage plan, in its projections.

The Associated Press contributed to this report.