Self Control Rules New Washington Budget Debate

WASHINGTON – White House and congressional budget analysts are about to announce bleak new deficit forecasts. So what better time for President Bush and his Democratic rivals to compete over who is doing more to keep the red ink under control?

When the Republican-led Senate completed a $390 billion measure last week financing most federal agencies for this year, the White House immediately claimed victory.

Over six days of debate, GOP senators beat back repeated Democratic attempts to add money for programs like border security and for schools in poor communities - amendments Republicans said would total more than $350 billion if calculated over 10 years.

"When the president said it was important to have fiscal discipline, this is a prime example of it," White House spokesman Ari Fleischer said.

Democrats are trying to take the offensive, too.

Their leaders have cranked out several economic stimulus bills - all markedly less costly than the 10-year, $674 billion package Bush has proposed, a plan dominated by tax cuts. On Friday, Senate minority leader Tom Daschle offered a one-year, $140 billion plan featuring tax cuts and aid to cash-drained states.

"The president's proposals will dig the deficit ditch about $1.5 trillion deeper over the next decade," including the costs of making permanent the 10-year, $1.35 trillion tax cut enacted in 2001, said Daschle, D-S.D.

Republicans argue that the only way to tame deficits is by what they are proposing: tax cuts for spurring economic growth and controlling spending.

Democrats say new large tax reductions will only make budget imbalances even worse, and argue that the Senate-passed spending bill seriously shortchanged crucial security and social programs.

Either way, the competition over which party's budget policies are more responsible distract from a larger problem: Federal deficits are back, they are huge and growing and there is no agreement about what to do about it.

In the late 1990s and early 2000s, four decades of annual shortfalls yielded to four years of surpluses when the strong economy and booming stock market produced a flood of revenue under President Clinton.

But then the economy soured, financial markets deflated and terrorists launched their Sept. 11 attacks. Abruptly, the black ink turned into a huge $159 billion deficit last year.

Presidents are usually blamed or credited for the performance of the federal budget. But so far, the Bush administration has not been politically damaged because of the weak economy and the attacks.

"That's given them a free pass," at least until the economy improves, said Robert Reischauer, president of the liberal-leaning Urban Institute and former director of the nonpartisan Congressional Budget Office.

The congressional office releases its newest projections on Wednesday. They are expected to be gloomier than last August, when the office foresaw shortfalls of $145 billion this year and $111 billion in 2004.

The administration unveils its numbers on Feb. 3. Two weeks ago, White House budget chief Mitchell Daniels pre-emptively described the bad news to come, saying deficits in each of the next two years would be in the $200 billion-$300 billion range.

Many private forecasters are more pessimistic. The investment giant Goldman Sachs Group said Friday that its earlier estimate of a $300 billion deficit for 2003 "looks somewhat optimistic at this point," and it expects a $375 billion shortfall in 2004.

When the budget fell deeply out of balance in the early 1990s, it became a major issue in the 1992 presidential campaign. That year's $290 billion shortfall remains a record - though one that might be surpassed soon.

That's because pressures to address many items waiting in the wings could drive deficits well beyond the official projections.

Those include a possible war with Iraq; creating new prescription drug benefits; boosting spending for defense, domestic security, schools, health and the states; and easing a tax code problem that is gradually forcing millions to pay the alternative minimum tax, which was designed to affect only higher-earning Americans.

In addition, the biggest costs of all loom in less than a decade, when baby boomers start retiring and the mammoth Social Security and Medicare programs will have to be shored up.