White House expects deficit in budget to shrink by 30%

Faster-than-expected rise in tax revenue gets credit in revised forecast

July 12, 2006|By JOEL HAVEMANN

WASHINGTON -- President Bush delivered what he called "some good news for the American taxpayer" yesterday - a budget update that shows the deficit for this year shrinking from the $423 billion forecast five months ago to $296 billion now.

Bush's budget office said faster-than-expected increases in tax revenues accounted for $115 billion of the improvement.

"The tax cuts we passed worked," Bush told a White House audience of aides and Republican members of Congress. The president said the tax cuts generated unexpected economic activity and consequent tax revenue.

Democrats were unimpressed. Rep. John M. Spratt Jr. of South Carolina, the top Democrat on the House Budget Committee, noted that when Bush came into office in January 2001, the White House budget projection showed a $305 billion surplus, so the new projected deficit of $296 billion represents a swing of $600 billion.

"Today's news is not cause for complacency, much less celebration," he said.

Sen. Kent Conrad of North Dakota, the ranking Democrat on the Senate Budget Committee, pointed out that the 2006 deficit comes as the baby boom generation is about to retire, with its oldest members qualifying for Social Security benefits in 2008 and Medicare coverage in 2011.

"Let's not boast about a $300 billion deficit," said Senate Minority Leader Harry Reid, a Nevada Democrat. "Any statistic you look at recognizes the rich in America are getting richer, the poor are getting poorer and the middle class is getting squeezed."

When the figures are adjusted for inflation, Conrad said, tax revenues have only now surpassed their levels of 2000. In 2002, the White House estimated that revenues would reach $2.5 trillion in 2006 under the tax laws then in effect. The revenue re-estimate issued yesterday was $2.4 trillion.

Spending re-estimates contributed $12 billion to the decline in the projected 2006 deficit in the past five months, compared with $115 billion in revenue re-estimates.

Altogether, spending is responsible for more of the swing toward red ink since 2002 than revenue. In 2002, based on the laws then in effect, spending in 2006 was projected to reach about $2.2 trillion; now, it is estimated at $2.7 trillion.

In rough terms, the Defense Department accounted for the biggest share, about $200 billion. Next came the Treasury Department, which pays interest on the rising national debt, at $60 billion.

The Health and Human Services Department - largely Medicare, which added a prescription drug program - was responsible for $50 billion, followed by the Agriculture Department ($30 billion), Homeland Security Department ($15 billion) and Social Security Administration ($10 billion).

Bush pledged to concentrate his deficit-reducing efforts on spending control.

"It's OK to create revenue growth," he said. "But if we spend all that revenue growth on wasteful programs, it's not going to help us meet our objectives."

The Bush White House has gained a reputation for overstating deficit figures early in the year in order to report better news later. If recent patterns hold, this year's deficit should improve even more by the time final figures are announced in October.

Bush has had few opportunities to boast about the deficit during his presidency. In 2001, he inherited a surplus from the Clinton administration estimated by both White House and congressional forecasters at $5.6 trillion over the subsequent decade. It quickly turned into deficits.

Those faulty estimates assumed the late-1990s revenue boom - fueled by the stock market and dot.com booms - would continue. That bubble burst, and a recession and the Sept. 11, 2001, terrorist attacks started a flow of red ink. Several rounds of tax cuts, including Bush's signature $1.35 trillion tax cut in 2001, also contributed to the return of deficits four years ago, after four years of budget surpluses.

Some budget experts say the steep rise in tax receipts looks more impressive than it really is because revenues are bouncing back from a three-year decline during Bush's first term, drops not seen since the Depression.

Joel Havemann writes for the Los Angeles Times. The Associated Press contributed to this article.

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