Washington – The congressional agency charged with keeping an eye on the budget has upped its deficit estimate for 2004 by $80 billion since its report from only two months ago, bringing the new deficit projection to $480 billion.
The Congressional Budget Office (search) on Tuesday also projected that the federal government will accumulate a debt of almost $1.4 trillion over the next 10 years, a reversal of previous predictions that the federal budget, battered by economic recession and rising defense and security costs, would head back into the black over the coming decade.
The CBO report confirms earlier estimates that the federal deficit for this fiscal year, which ends Sept. 30, will be $401 billion, well above the previous record deficit of $290.4 billion set in 1992. A deficit of $401 billion would represent nearly 4 percent of the size of the U.S. economy.
Many economists consider percentage of the gross domestic product to be a significant measure of the government's ability to afford its debt. Some Republicans argue that because the economy is so much larger today, $10.5 trillion, the budget shortfall has less of an impact.
CBO Director Douglas Holtz-Eakin said his office predicts a deficit in 2005 of $341 billion with a return to surplus in 2012 and 2013. He said those assumptions are based on Congress' allowing 10-year tax cuts to expire in 2010 and does not take into account new spending programs like the $400 billion Medicare prescription drug plan Congress is now considering.
The numbers also rely on current spending figures for the war in Iraq and does not incorporate future increases in spending there.
The Office of Management and Budget (search), the White House budget agency, has predicted that next year's budget will be $475 billion declining to $213 billion in 2007. OMB spokesman Trent Duffy said those figures are based on numbers that include the government enacting a prescription drug benefit.
But Democrats immediately glowered at the news.
“You’ve got to ask yourself what can be done. This is getting worse, and there is no way to gloss over it,” said Rep. John Spratt, D-S.C., ranking member of the House Budget Committee.
Calling the White House “part of the problem, not part of the solution,” Spratt said, “What we are going to have here is a massive accumulation of debts and deficits just on the eve of the retirement of the baby boomers. ... We should be saving more and not less.”
Congressional Democrats argue that the Bush administration's drive to pass new tax cuts and make existing tax breaks permanent, coupled with efforts to give seniors a Medicare prescription drug benefit and to meet sharply rising defense costs, will eliminate the possibility for a return to surpluses in the next decade, they said.
Spratt said that if tax cuts scheduled to expire over the next decade are made permanent, which will remove an additional $1.2 trillion from the federal coffers. He said the White House is seeking another $878 billion in new tax cuts over the decade.
“When we make changes to adjust for reality, we’ve got a deficit that’s a structural deficit," Spratt said.
An analysis by Budget Committee Democrats shows the deficit will hit $495 billion in 2004, and will never go below $300 billion in the 2004-2013 period, reaching a total over the decade of $3.7 trillion. If money from the Social Security surpluses now being used to pay for other federal programs is not factored in, the decade-long deficit will be $6.3 trillion, they say.
The Bush administration has blamed the swift reversal from budget surpluses to perennial deficits on the faltering economy, the Sept. 11 attacks and the sharp rise in defense and homeland security costs. The White House says the fiscal situation will improve as the economy, bolstered by the Bush tax cuts, becomes more robust.
A strong economic recovery and controlled federal spending will be the key to balancing the budget, said Sean Spicer, spokesman for House Budget Committee Chairman Jim Nussle, R-Iowa.
"We're trying to do both," Spicer said.
Spratt rejected this argument, saying that even with robust growth of more than 3 percent a year over the next few years, large deficits will persist.
“We are leaving our children a Social Security program that is underfunded. We are leaving them a Medicare program that is underfunded. Now on top of that there is a $7 trillion debt,” he said.
The Associated Press contributed to this report.
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