WASHINGTON – The federal deficit in the budget year that just ended fell to a four-year low of $247.7 billion — a figure President Bush touted Wednesday as "proof that pro-growth policies work."
The deficit for the budget year that ended Sept. 30 was 22.3 percent lower than the $318.7 billion imbalance for 2005, handing Bush a welcome economic talking point as Republicans battle to hold onto control of Congress in the midterm elections.
Bush, speaking to members of his administration, called his first term tax cuts the "cornerstone of our economic recovery policy" and said he would keep working to get Congress to make those tax cuts permanent.
In an earlier news conference, Bush said the deficit outcome for the 2006 budget year represented a "dramatic reduction" that redeemed his 2004 campaign pledge to halve the deficit earlier than his original 2009 target date.
"These numbers show that we have now achieved our goal of cutting the federal deficit in half and we've done it three years ahead of schedule," Bush told reporters at a Rose Garden news conference.
The pledge to cut the deficit in half was based on the administration's forecast that the 2004 deficit would hit $521 billion, a figure that proved to be too pessimistic by more than $100 billion. However, the administration has continued to use the forecast number as its benchmark for deficit reduction.
Bush said he would continue to urge Congress to make permanent his first-term tax cuts, all of which are due to expire by the end of 2010.
Republicans are hoping to appeal to voters in the upcoming election as the party that champions tax cuts while casting Democrats, who contend that those tax cuts primarily benefited the wealthy, as the party which would increase taxes.
During his news conference, Bush predicted that the Republicans would maintain control of both the House and the Senate in part because of Democrats' stand on taxes.
"There's a difference of opinion in the campaign about taxes," Bush said. "I would like to ... make the tax cuts permanent. And the Democrats will raise taxes."
Bush said that while Democrats say they just want to raise taxes on rich people, "it's just a codeword. They're going to raise them on whoever they can raise them on."
For their part, Democrats called the 2006 deficit improvement a temporary blip and predicted rising deficits for years to come unless policies are changed.
"Only a president with such a historically bad economic record would be this excited about a $248 billion deficit," said Rep. Carolyn Maloney, D-N.Y. "Under his watch ... record surpluses turned into record deficits as far as the eye can see."
Both spending and tax revenues climbed to all-time highs in 2006. The sharp narrowing of the deficit reflected the fact that revenues climbed by 11.7 percent, outpacing the 7.3 percent increase in spending.
The 2006 deficit was far lower than the $423 billion figure the administration had projected last February and also represented an improvement from a July revised estimate of $295.8 billion.
Republicans said the big improvement showed that Bush's economic policies were working to stimulate growth and boost tax revenues. But Democrats said the narrowing of the deficit would be temporary as the pending retirement of 78 million baby boomers will send costs of the government's big benefit programs soaring.
"The fact that some are trumpeting this year's deficit number as good news shows just how far we've fallen. Our budget picture is extremely serious by any measure," said Sen. Kent Conrad, the senior Democrat on the Budget Committee.
The nonpartisan Congressional Budget Office projects that the deficit for the current budget year will rise to $286 billion. Over the next decade, the CBO forecasts that the deficit will total $1.76 trillion.
Extending the Bush tax cuts, which are currently scheduled to expire at the end of 2010, would add another $2.2 trillion to the deficit through 2016, the CBO estimates.
The 2006 deficit was the smallest deficit since a $159 billion imbalance in 2002, a shortfall that came after four straight years of budget surpluses, the longest stretch that the government had finished with surpluses in seven decades.
Since that time, the government has recorded three of the biggest deficits in history including an all-time record in dollar terms of $413 billion in 2004.
The reason for the improvement this year was a second consecutive big jump in revenues, propelled by strong economic strength. The 11.7 percent increase in revenues was the second biggest percentage gain in history.
The administration credits its tax cuts for the improving economy, contending they helped the nation withstand the 2001 recession, the terrorist attacks and a wave corporate accounting scandals.
But Robert Greenstein, head of the liberal-leaning Center on Budget and Policy Priorities, said the big revenue increases in the past two years followed three consecutive years in which revenues fell, reflecting the impact of a recession and Bush's earlier tax cuts.
"This temporary improvement has little to do with a tax-cut driven surge in revenues or the economy," he said. "What stands out is that both revenue growth and the economy have performed markedly worse in the current recovery than in average recoveries of modern times."