Bush goal for deficit reduction unlikely

CBO doubts plan to halve $422 billion shortfall by '09


WASHINGTON - Even if the United States saved billions of dollars by withdrawing all troops from Iraq and Afghanistan, President Bush would still be unlikely to fulfill his promise of reducing the federal budget deficit by half within five years, the nonpartisan Congressional Budget Office said yesterday.

In the last independent assessment of Bush's fiscal policies before the November election, the congressional agency predicted that, if no existing laws change, the federal deficit will decline to $312 billion in 2009 from a record of $422 billion this year.

If Bush persuades Congress to make his tax cuts permanent, the federal deficit would increase to about $500 billion in 2009. Over the next 10 years, the congressional agency said, the federal debt could swell by $4.8 trillion and climb rapidly after that as the nation's baby-boomers start to draw Social Security and Medicare benefits.

The new estimate is the first time that the congressional agency has projected that Bush will probably fail to achieve his goal of reducing the deficit by half in five years.

Budget deficits have soared under Bush, who took office when the budget was running a surplus of more than $150 billion and is now presiding over the second record budget deficit in a row.

Measured as a percentage of the total economy, the deficit would reach 3.6 percent of the gross domestic product this year - high, but not as big a percentage as with the deficits of the 1980s and early 1990s.

Budget projections, by Congress as well as by the administration, have been notoriously wrong in the past - as when analysts failed to anticipate a flood of tax revenue during the late 1990s or the plunge in revenues after the stock market collapse in 2000 or the recession that followed.

But this new report is sobering because congressional analysts reached their conclusions even when they made extremely optimistic assumptions about war costs in Iraq and robust economic growth over the next few years.

"The message is that you cannot grow your way out of this," said Douglas Holtz-Eakin, director of the Congressional Budget Office and a former chief economist on President Bush's Council of Economic Advisers.

The budget office also estimated the fiscal outlook with three different assumptions about the course of the war in Iraq and Afghanistan, including the unlikely possibility that no new money would be needed after this year.

Stripping out all war costs for the two countries after this year, congressional analysts estimated the federal government would save $536 billion over the next five years. But making Bush's tax cuts permanent, one of the president's top priorities, would cost $549 billion through 2009 and $2.2 trillion through 2014.

Democrats said the new report showed that Bush's tax cuts and spending policies had been reckless in transforming a record budget surplus to a record budget deficit, just a few years before the nation's retiring baby-boomers start to drive up Social Security and Medicare entitlement costs by tens of billions of dollars a year.

"When the Bush administration took office in 2001, CBO projected a $397 billion surplus for 2004," said Rep. John Spratt of South Carolina, the senior Democrat on the House Budget Committee. "Under the fiscal policies of this administration, the bottom line of the budget has worsened by $819 billion in 2004 alone."

But Chad Kolton, a spokesman for the White House Office of Management and Budget, said the main difference between administration and congressional estimates stems from differences in plans to restrain spending on discretionary programs.

"We have very reasonable estimates for growth," Kolton said. "If spending control is maintained, we can cut the deficit in half over the next five years."

But the Congressional Budget Office's assumptions about discretionary spending were at least as conservative as those of the White House. Congressional analysts assumed that discretionary spending will rise at the rate of inflation, which is running slightly above 2 percent a year. The White House has said it will hold all discretionary spending, including defense spending, to 4 percent a year.

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