Federal deficit picture for '05 brightens

But long-term outlook for budget remains cloudy

August 16, 2005|By Joel Havemann | Joel Havemann,LOS ANGELES TIMES

WASHINGTON - A windfall of tax revenues, especially from corporations, has substantially brightened the short-term budget outlook, but beyond this year the deficit is still an unsolved problem, the Congressional Budget Office reported yesterday.

For fiscal 2005, the budget office forecast a $331 billion deficit, in line with the Bush administration's latest estimate, issued last month. That compares with the $364 billion deficit that the office forecast in March and the $412 billion that the Bush administration estimated in February.

Republicans said the report validates the Bush administration's tax cuts as an engine of economic growth.

"It provides further evidence that the pro-growth policies put in place by Congress and the president are working to strengthen the economy and lower the deficit," said Sen. Judd Gregg, a New Hampshire Republican who is chairman of the Senate Budget Committee.

But Douglas Holtz-Eakin, director of the Congressional Budget Office, estimated that three-quarters of the revenue increases driving down the 2005 deficit are temporary and not built into the economy.

James R. Horney, a budget expert at the Center on Budget and Policy Priorities, an independent fiscal policy organization in Washington, said the improving economy could not be responsible for the extra tax revenues because the report did not show the economy gaining strength compared with its March forecast.

And many independent analysts worried that the series of reports showing a shrinking 2005 deficit might make Congress less vigilant about further deficit reduction.

"The sun may be shining for now, but there are a lot of dark clouds on the horizon," said Brookings Institution budget analyst Isabel Sawhill. "The long-term budget picture is bad and getting worse."

Sen. Kent Conrad of North Dakota, the ranking Democrat on the Senate Budget Committee, pointed out that the Congressional Budget Office predicted $157 billion in new revenue in the 2006-2010 period, far less than the administration's projection of $406 billion.

"It would be a mistake to rely on this revenue increase carrying forward," he said in a statement.

Rep. John Spratt of South Carolina, ranking Democrat on the House Budget Committee, said the projected $331 billion fiscal 2005 deficit - which would be the third-largest ever - was nothing for the administration to crow about. He pointed out that the 2005 budget had swung $764 billion in the wrong direction since Bush took office in 2001. At that time, the Congressional Budget Office foresaw a surplus of $433 billion for 2005.

As required by law, the office's budget projections are based on laws on the books, even though they might not endure for the full 10 years covered by the budget estimates. Thus, its most recent projections, in March, included little spending for the war in Iraq because Congress had not then enacted its major war appropriations bill.

Congress has since voted $95 billion in supplemental appropriations for 2005, not only for the war but also for tsunami relief and veterans' health care.

The Congressional Budget Office, therefore, has assumed that those expenditures would be repeated in each of the subsequent nine years.

Similarly, the budget office assumed that the Bush tax cuts enacted in 2001 and 2003 would expire as scheduled in 2011, even though the president has said he would work to make them permanent.

Using this approach, the Congressional Budget Office found that the deficit, after shrinking by $33 billion in 2005 compared with its earlier estimate, would grow in each of the next 10 years by a total of$1.13 trillion.

The deficit would remain just above $300 billion a year through 2010 and then, driven down by the expiration of the tax cuts, fall to between $50 billion and $100 billion for 2012 through 2016, the CBO said.

The budget office also projected the impact of more "realistic" policy assumptions, including phasing out U.S. operations in Iraq and extending the expiring tax cuts.

The Congressional Budget Office did not do the arithmetic to show the deficits that might result, but the Center for Budget and Policy Priorities did.

The center found that annual deficits would not dip below $330 billion through 2015 and that altogether, $4 trillion would be added to the national debt over the next 10 years.

Richard Kogan, a senior fellow at the center, said the national debt, 30 percent of annual economic output when Bush took office, would grow to 44 percent by 2015 under these policies.

The Los Angeles Times is a Tribune Publishing newspaper.

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