Archive for Wednesday, January 26, 2005

Federal deficit expected to reach $368B this year — without new Iraq request

January 26, 2005


— The federal budget deficit will hit $368 billion this fiscal year, Congress' top budget analysts predicted Tuesday, and that doesn't include mushrooming spending on the war in Iraq.

The Congressional Budget Office made public its projection just as the White House announced it would seek request $80 billion in emergency spending for this fiscal year, most of it to pay for military operations in Iraq.

By White House calculations, those war costs will drive this year's deficit to $427 billion. If the CBO is right, the extra $80 billion will drive the deficit to $448 billion. No explanation was available Tuesday for the difference between the two figures.

Whatever their size, the exploding deficits are likely to influence how Congress tackles a Republican agenda that calls for overhauling Social Security and making President Bush's first-term tax cuts permanent. Those two initiatives alone could cost the federal government $3.5 trillion by 2015.

America's massive federal budget and foreign-trade deficits are already spawning global financial anxieties and driving down the value of the dollar. The United Nations warned Tuesday that the twin U.S. deficits were pulling the world economy off balance.

President Bush has vowed to cut the federal budget deficit in half during his second four-year term, but world governments and financial markets increasingly fear that Washington cannot control its spending. CBO projects federal budget deficits will total $855 billion over 10 years starting in 2006, a number that also does not include the costs of war in Iraq or Bush's new proposals.

The worsening financial outlook increases pressure on Republicans eager to pursue Bush's priorities, and on Democrats, who increasingly argue for fiscal restraint, to accept spending cuts in programs they hold dear, including Medicare and Medicaid.

Congressional reaction to the numbers fell along partisan lines, with Republicans vowing to reduce the deficit by slowing spending, particularly on so-called entitlement programs such as Medicare and Medicaid. Democrats said that some tax increase would be necessary to drain the red ink.

Sen. Kent Conrad of North Dakota, the top Democrat on the Senate Budget Committee, noted that federal tax revenue would barely equal 17 percent of the nation's gross domestic product, the lowest percentage since 1959. Indeed, CBO said that revenue from individual income taxes in 2004, as a percentage of GDP, was the lowest since 1951.

Commenting has been disabled for this item.