Budget deficit still huge but smaller than expected

Lower figure attributed to higher tax receipts


WASHINGTON - As the government closed the books on the 2003 fiscal year this week, the Bush administration received a modest piece of good news: The 2003 budget deficit, while still the largest in history, was smaller than predicted.

In August, the nonpartisan Congressional Budget Office estimated that the deficit would be $401 billion when the fiscal year ended Sept. 30. Now the office says the deficit will top out at $374 billion - still more than double the 2002 gap of $158 billion.

At first glance, the smaller deficit might seem to be a portent of an improving economy. About half the reason for the $27 billion difference is because of higher tax receipts, particularly from corporations, which the budget office said had a particularly strong final quarter.

But Douglas Holtz-Eakin, the budget office director, said yesterday that tax revenue might have risen because corporations paid taxes slightly earlier than expected.

"There's really no single particular reason why it came in below the earlier estimate," Holtz-Eakin said. "I wouldn't say it's a dramatic recovery or anything like that, it's really just a confluence of events. It's a heartening difference, but not really that big."

Because there has been little change in the big-picture reasons for the record deficit - tax cuts, a sluggish economy, huge outlays for the military and security - the budget office is not changing its deficit prediction for 2004, which remains at $480 billion, Holtz-Eakin said. That figure is likely to rise substantially once Congress passes the $87 billion emergency spending bill President Bush has requested for operations in Iraq and Afghanistan.

The budget office's calculations of a smaller deficit parallel those of the administration, which said this week that the year would end with a deficit of about $380 billion, rather than the $455 billion it foresaw in July. Joshua B. Bolten, the White House budget director, said that the higher tax collections were a good economic sign, and predicted that the administration would cut the deficit in half sooner than its five-year goal.

"I have optimism that it will be possible to meet the president's objective rapidly within that five-year period again," Bolten said Wednesday, "if we continue pro-growth economic policies and exercise fiscal restraint of the nature reflected in the president's '04 budget proposals."

Congressional Democrats, who have made the deficits a cornerstone of their critique of the Bush administration, said the improvement in the outlook was small and changed little in the long-term forecast.

"The administration's tax cuts and budget policies have not created jobs as promised, but they have created huge deficits that will stifle growth in the future and burden our children and grandchildren with debt," said Rep. John M. Spratt Jr. of South Carolina, the ranking Democrat on the House Budget Committee.

The other half of the $27 billion difference was because of less government spending than predicted, the Congressional Budget Office said. Holtz-Eakin said the office overestimated how much the Pentagon would spend this year.

Nonetheless, the office's year-end report said that military spending had grown by 16 percent in 2003, the fastest rate of increase in 20 years, and more than double the 7 percent average growth of non-military programs.

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