Deficit will be largest ever

Bush's budget director said the report is evidence the economy is growing.
WASHINGTON POST
WASHINGTON -- The White House forecast Friday that the U.S. budget deficit for this year will be a highest-ever $445 billion, lower than the administration previously predicted but nearly 20 percent larger than last year's previous record shortfall.
President Bush's budget director, while calling the figure "unwelcome," said the new forecast for fiscal year 2004 -- in line with recent congressional forecasts -- provides evidence that the economy is growing and tax receipts are recovering. The message echoed a new refrain in President Bush's campaign speeches, voiced repeatedly Friday in Missouri: "We're turning the corner, and we're not turning back."
But Democrats -- and the campaign of presidential nominee John Kerry -- countered that the new estimate looked good only in comparison with a previous estimate of $521 that was unrealistically high, and that the deficit is still on pace to be $70 billion higher than last year's $375 billion.
Economic growth slowed
Further clouding the economic picture, the Commerce Department announced that economic growth slowed sharply in the second quarter, to an annual rate of 3 percent from a revised rate of 4.5 percent in the first quarter. Dragged down by the lowest consumer spending in three years, the quarterly growth rate was the lowest since the first quarter of 2003.
In addition, the Labor Department announced Friday that from the start of 2001 to the end of 2003, 11.4 million workers were displaced from jobs, 5.3 million of them from jobs they had held for three or more years. Though two-thirds of the 5.3 million found new jobs, 57 percent of those who did find work earned less than they had previously.
Still, the White House declared a qualified victory. "The deficit remains at a level that we think is unwelcome," said Joshua Bolten, director of the Office of Management and Budget. "The good news is that it is much lower than we projected, and we or any of the other forecasters projected just six months ago, and we believe that that is a product of the strong economic policies that the president has put in place, and that the trend will continue."
Bush's vow
Bolten said the government was ahead of pace to reach Bush's vow that the deficit would be cut in half over five years. But he said that the target for the reduction would be based not on an actual deficit but on the earlier, overstated deficit forecast for 2004. He also said the predicted reduction would be based not on actual dollars, but on the deficit as a percentage of gross domestic product. The deficit for fiscal 2004, which ends Sept. 30, would be 3.8 percent of gross domestic product, Bolten said, well below the modern high of 6 percent in 1983.
The White House projected a deficit of $331 billion for fiscal year 2005, which begins Oct. 1. But Bolten said declining deficit projections for the next four years did not include additional emergency spending, which is expected to reach tens of billions of dollars. "You need to factor in that we will need additional spending, at least in the short term, in both Iraq and Afghanistan," he said.
Democrats ridiculed the White House's upbeat portrayal of the statistics. "The administration announces the largest deficit in the history of the United States, and they claim things are getting better. That is a remarkable claim," said Sen. Kent Conrad, D-N.D., the ranking Democrat on the Senate Budget Committee. "It's a little like the captain of the Titanic saying there's good news as the ship goes down, because it's not sinking as fast as he'd said it would."
Kerry's campaign said that even the reduced deficit forecast for 2004 is $800 billion worse than the Congressional Budget Office forecast in 2001 for this year. Bolten said the deficits came from "an extraordinary confluence of adversity," including the terrorist attacks and corporate scandals. He did not list tax cuts as a cause.
The White House did not offer forecasts beyond five years. The Committee for a Responsible Federal Budget said "the problems only get worse" after that period, when increasing numbers of baby boomers will retire and become eligible for Social Security and Medicare.
Increased cost projections
The White House report Friday increased projections of costs for both the Medicare and Social Security programs, raising the Medicare cost by $67 billion and Social Security by $59 billion over five years.
The report marked just the beginning of election-year budget sparring. The budget director also said the federal government would reach its debt ceiling in early October, which means Congress will be called upon to raise the debt limit in the weeks before the election. But Bolten said Bush expects to ask Congress for additional money for Iraq early next year, which would avoid a pre-election showdown.
Despite Friday's report on slower economic growth, the administration also raised its overall growth forecast for the year to 4.7 percent from an earlier forecast of 4.4 percent. Growth in 2005 was put at 3.7 percent.