Federal Deficits to Balloon Before Shrinking

WASHINGTON – Don't expect the federal budget to be in the black, like the heyday of the late 1990s.

Federal deficits will balloon in the next two years, before dropping, but no surpluses are in sight "for the foreseeable future," Office of Management and Budget chief Mitch Daniels told businessmen and reporters Wednesday at the U.S. Chamber of Commerce.

Last year's deficit was $159 billion, the first year of deficits since 1998. Last summer, Daniels projected deficits of $109 billion this year and $48 billion in 2004.

Daniels said deficits will reach the $200 billion to $300 billion range over the next two years, and everyone else should just "stand by" to wait and see when surpluses return. That's a far bleaker outlook than the White House estimated last July, when it said the budget would be balanced by 2005.

But Daniels cautioned, "It's important to keep our heads about this."

After all, he said, the deficits are only about 2 to 3 percent of the total yearly economy of $10.5 trillion.

That doesn't do much to appease congressional Democrats who have blasted President Bush's economic stimulus plan as a boon to the rich while at the same time demanding billions of dollars more in federal spending.

The president has proposed a 10-year, $674 billion, tax-cutting proposal to revive the economy, and therefore, bring more receipts to the federal government, which would in turn shrink the deficit.

Democrats are looking to expand Medicare and other social services, and many have suggested that a possible war with Iraq would be fiscally imprudent.

"It is the most reckless fiscal policy imaginable for our country," said Sen. Kent Conrad of North Dakota, the Senate Budget Committee's top Democrat.

Private investors have said they fear deficits could reach as high as $375 billion next year, beating the record $290 billion set in 1992 during the term of President George H.W. Bush.

As a percentage of the overall economy, the deficit is not nearly as high as the 6 percent peak reached in 1983 during the arms race or the 4-5 percent that lasted throughout most of the 1980s and 1990s.

"By historical perspectives, they are modest, they are manageable at this level," Daniels said. "Our common goal ought to be to contain them."

Democrats call that form of analysis — especially from a party whose members once demanded a balanced budget constitutional amendment — spin control.

"They're whistling past the graveyard, they're putting the best face they can on a bad situation," said Rep. John Spratt of South Carolina, top Democrat on the House Budget Committee. "They want to cushion the impact as much as possible to make it seem like it doesn't matter."

Bush will release his 2004 budget on Feb. 3. Asked what it would do to control deficits, Daniels said, "It's going to control spending and propose measures that will grow the economy, which is the only way back to surplus."

Daniels said that protecting national security and strengthening the economy are higher priorities right now than balancing the budget. President Bush has frequently said that the balance sheet had to suffer while there was recession and a war on terrorism. Democrats added a 10-year, $1.35 trillion tax cut enacted in 2001 to the causes of the imbalance.

Daniels noted that his deficit projections exclude the price tag of any war with Iraq. He has estimated such costs at perhaps $50 billion to $60 billion, while former White House economic adviser Lawrence Lindsey estimated $100 billion to $200 billion.

Meanwhile, Agriculture Secretary Ann Veneman said Bush will seek a 1 percent increase next year for the government's primary nutrition program for low-income infants, preschoolers and pregnant women, enough to reach an additional 400,000 people.

The Associated Press contributed to this report.