Administration Projects Deficit to Top $450 Billion This Year

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Democrats arguing that an increasing deficit will prevent the federal government from paying for popular domestic programs saw fuel added to their fire Tuesday when the Bush administration projected that the federal deficit will reach $455 billion this year.

"The news that the federal deficit may pass $450 billion this year alone and is on track to reach record highs is proof that we don't just need a new economic team, we need a new president," said Democratic presidential candidate Massachusetts Sen. John Kerry.

"What's missing from today's presentation is any plan or process to address what clearly is a worsening problem," said South Carolina Rep. John Spratt, top Democrat on the House Budget Committee (search). "One has to be skeptical of these numbers."

The Office of Management and Budget (search) said that next year's budget shortfall will top this year's high, reaching $475 billion, but that the numbers will slowly start to fall after that until the deficit reaches $226 billion in 2008. That number is still higher than the original figure forecast for 2003, projected last year.

OMB Director Josh Bolten said that OMB's deficit projections for this year have jumped by some 50 percent over its estimate of only six months ago because of several factors, including weaker than anticipated economic growth and tax receipts and additional spending for the war on terror.

Bolten said the deficit is the largest ever in dollar terms, but at 4 percent is nowhere near the largest as a percentage of the economy, and he added that while the deficit's size is reason for concern, it is not the greatest concern facing the United States.

"A balanced budget is not a higher priority than winning the global war on terror, protecting the American homeland or restoring economic growth and job creation," he said.

Anticipating Democratic arguments, Bolten also noted that the tax cuts account for less than one quarter of the deficits and are key to getting the economy growing again.

"The tax cuts proposed by the president and enacted by Congress are not the problem, they are and will be part of the solution," he said, adding that projections are the economy will grow next year to 3.7 percent from 2.3 percent this year.

But Democrats were also miffed by Republican claims to be able to cut the deficit in half in the next few years.

"It is time to sober up," said Senate Budget Committee ranking member Kent Conrad, D-N.D. "After you first triple the deficit, quadruple it, cutting it in half isn't exactly something to brag about."

"There seems to be no shame, no shock and no solution," Spratt said. "They lay this out and let us rest on blind faith that in time this problem will self-correct."

Democrats had been arguing that the administration's deficit spending will lead to much higher interest rates. So far, that hasn't happened.

The chairman of the Federal Reserve Board told Congress he would be concerned about the deficits if they continued for very long but that for now, the Federal Reserve intends to keep rates low.

"For as long as it takes to achieve a return to satisfactory economic performance," Federal Reserve Chairman Alan Greenspan said in response to questions about how long low interest rates can be expected.

Greenspan and the administration emphasized the need to hold down spending while deficits are this large.

Republicans say that the new numbers will be helpful in holding back federal spending, which is primarily responsible for deficit growth.

"Tax cuts do not cause deficits ... you only borrow money in Washington for spending. These are spending-driven deficits," said Rep. Jim Nussle, R-Iowa, chairman of the House Budget Committee.

Tuesday's announcement was the first time the administration acknowledged that the budget deficit would pass the $400 billion mark, even though the nonpartisan Congressional Budget Office (search) said last month that earlier projections were too low. For months, private analysts have expected the deficit to surpass $400 billion.

The deficits are a turnaround from just two years ago, when the 2001 budget year saw a $127 billion surplus, the fourth straight and second largest ever. The Sept. 11, 2001, terror attacks hit at the end of that fiscal year, and spending has been higher since then, with last year's deficit reaching $158 billion.

Even though next year's deficit is already estimated to be $475 billion, only $20 billion is allocated for the ongoing costs of postwar Iraq, suggesting that the deficit could grow more next fiscal year, which starts Oct. 1.

Fox News' Jim Angle and The Associated Press contributed to this report.