CBO Projects Deficits of $199 Billion This Year, $145 Billion in 2004

The Congressional Budget Office on Wednesday projected deficits of $199 billion this year and $145 billion in 2004, worsening the government's fiscal outlook anew and further enflaming this year's budget battle between President Bush and Democrats.

The new figures, obtained by The Associated Press, marked the latest decline in what has now been two years of steady decay in the government's economic expectations. In August, the nonpartisan agency envisioned shortfalls of $145 billion this year and $111 billion in 2004.

A string of annual deficits is to turn back to surpluses in 2007, when the CBO projects $26 billion in black ink.

The budget agency also forecast a cumulative surplus of $629 billion over the decade beginning in 2003. That, too, was a retreat from August, when CBO foresaw a cumulative surplus of $1 trillion over the decade beginning in 2003.

Though gloomier than five months ago, the budget office figures almost certainly understate the shortfalls. Since CBO by statute must only count taxes and spending enacted into law, its estimates omit the costs of Bush's proposed $674 billion, 10-year economic growth package, possible war with Iraq and billions in spending increases that Congress is likely to approve.

Some private economists have projected that this year's deficit will hit or surpass $300 billion. The worst ever was the $290 billion in red ink the government recorded in 1992, when Bush's father was president.

Underlining the rapid deterioration in the government's books, CBO just two years ago projected a $5 trillion surplus for the next decade. At that time, the new Bush administration envisioned $5.6 trillion in surpluses -- a forecast it pared down to an $827 billion surplus this past August.

The president and congressional Republicans blame the continued bad news on the limp economy and repercussions of the Sept. 11, 2001, terrorist attacks. They argue that buttressing the economy and fighting terror are higher priorities than balancing the budget, and say that deficits of this size are manageable compared to the $10.5 trillion size of the U.S. economy.

Democrats say Republicans omit another cause of the problem -- the $1.35 trillion, 10-year tax cut that Bush and predominantly GOP lawmakers pushed through Congress in 2001. They say Bush's economic plan -- all but $4 billion of which are tax cuts -- would only make the deficit worse, and argue that higher deficits risk pushing interest rates higher and squeeze funds for other budget needs.

The red ink has become a sensitive issue for the Bush administration because of the abrupt turnabout in the government's financial picture. After four decades of annual deficits, there were four consecutive annual surpluses in the final years of the Clinton administration that ended with a $159 billion shortfall last year under Bush.

The deficits Bush will forecast in the budget he releases on Monday will be even worse than CBO's because the White House forecast will factor in the price tag of his proposed economic package and some additional spending. It will not include the costs of a possible war with Iraq.

Daniels said Bush would forecast a 2003 deficit of less than 3 percent the size of the U.S. economy. That translates to a shortfall of about $300 billion or less, a deficit that he said would gradually decline in coming years.

Daniels, who provided no other specifics about deficits, said Bush could erase the red ink quickly "if all the nation cared about was getting back to balance in the budget." Instead, he said, Bush's budget was focused on battling terrorism, strengthening the economy, shoring up Medicare and other priorities.

"There is a conscious choice here, but we should bear in mind if the No. 1 priority was balancing the budget, it would not be a great trick to do," simply by limiting growth in spending, he said in a telephone interview.

Congress, gridlocked during last fall's midterm elections, still is working on spending bills for the budget year that began Oct. 1.

By voice vote Tuesday, the House approved a bill that keeps agencies open through Feb. 7 while budget negotiations continue. Without the bill, spending authority will expire Jan. 31, and quick Senate passage is expected.