White House Projects Highest Deficit Ever

Associated Press ^ | 07/30/2004 | Alan Fram

[presidentbowen]

By ALAN FRAM

WASHINGTON (AP) - This year's federal deficit will soar to a record $445 billion, the White House projected Friday in a report provoking immediate election-season tussling over how well President Bush has handled the economy.

The administration's annual summertime budget update forecast shortfalls falling to $331 billion next year, then fading to $229 billion by 2009. For each year, the red ink was smaller than the White House envisioned six months ago.

The analysis was released the same day the Commerce Department said economic growth slowed this spring to an annual rate of 3 percent, well below the 3.8 percent spurt that many economists expected. The slowdown was caused by a spending cutback by consumers in the face of high gasoline costs, the department said.

Administration officials hailed the budget figures as a solid improvement over the deficits analysts forecast early this year, and said they were on their way to their goal of halving this year's shortfall in five years. The White House estimated a $521 billion budget gap for 2004 in February, while the nonpartisan Congressional Budget Office predicted a $477 billion deficit.

"This improved budget outlook is the direct result of the strong economic growth the president's tax relief has fueled," said White House budget director Joshua Bolten.

He conceded that the red ink remained at "unwelcome" levels, but said the report was still "good news" because of the reduction from earlier estimates.

Democrats contrasted the $445 billion projection with the $262 billion surplus for this year that Bush projected in 2001, when he was persuading Congress to approve the first of his tax cuts.

The shortfall will be the third consecutive - and ever-growing - deficit under Bush, following four consecutive annual surpluses under President Clinton. Democrats said the turnabout underscored the damage done by Bush's tax cuts and his poor stewardship of the economy, and criticized the White House praise for the report.

"What we've got now is a president of the United States who is actively misleading the American people on the financial condition of the country," said Sen. Kent Conrad of North Dakota, top Democrat on the Senate Budget Committee. "Shame on him."

The White House attributed this year's improvement to the collection of $82 billion more in revenue than anticipated, reflecting stronger economic activity. That was partly offset by $6 billion more in spending than expected, largely for Medicaid and Medicare.

The projection, if accurate, would mean the government will have to borrow 19 percent of the $2.32 trillion it expects to spend this year.

Last year's $375 billion deficit was the largest ever. When adjusted for the loss of purchasing power caused by inflation, only the shortfalls during World War II have exceeded the projected $445 billion shortfall.

The Concord Coalition and the Committee for a Responsible Federal Budget, bipartisan groups that advocate balanced budgets, said the report showed deficits must be controlled.

"We cannot continue to allow this burden to multiply for our children and our children's children," said Maya MacGuineas, the committee's executive director.

The White House said this year's actual deficit could well be smaller because federal agencies often overestimate expected spending. The government's budget year runs through Sept. 30, so the final figures will be in shortly before the Nov. 2 elections.

Administration officials say a $445 billion deficit would be manageable because it would be 3.8 percent the size of the economy - well under the 6 percent ratio during the worst of the red ink under President Reagan.

"I am pleased with the direction we are moving in," said House Budget Committee Chairman Jim Nussle, R-Iowa. Continuing a Republican theme, he and others said the numbers showed spending must be constrained.

Democrats said by only extending five years, the projections ignored the longer-term budget crisis looming as the baby boom generation starts retiring later this decade.

The report included the $25 billion Congress recently approved for U.S. action in Iraq and Afghanistan. But Democrats noted it ignored the next request for those wars the White House will make early next year, and the costs of easing the alternative minimum tax's effect on middle-income families.

"There's no shock, there's no shame and there's no solution" from the White House, said Rep. John Spratt of South Carolina, lead House Budget Committee Democrat.

The report also boosted the estimate of Medicare spending by $67 billion over the next five years. It said $26 billion was to correct costs left out of Bush's budget last February, with the rest reflecting new estimates for the program's spending.

Medicare, the government's health insurance program for the elderly and disabled, spends about $300 billion a year. It already faces questions about its solvency because of the burden the baby boomers will place on it, and growing medical costs.

The report was released a day after the Democratic National Convention and the same day Congress began hearings on the Sept. 11 commission's final report. The deficit projection was due July 15, a date often ignored by administrations of both parties.

Bolten said the report was not ready earlier, but Democrats said the timing was aimed at hiding it.

[Regulator]

Reagan at least had an excuse as the opposition controlled congress

And Tip O'Neill blackmailed him into signing off on the entitlements to get the defense budgets he needed. No butter? No guns.

Bush has no excuse

None whatsoever.

[smoothsailing]

No problem.

Thanks for your response.

So, in your humble opinion, who should be our next President?

[The Wizard]

an honest headline would be: deficit 100 billion less than expected

[endthematrix]

What happens to the money supply when you pay back the Federal Reserve? All that cash floating around is debt to be returned.

[aquila48]

an honest headline...

From the AP??

And, as a fraction of GDP it is only 4%. I'm sure we've had higher deficits than that.

[RWR8189]

Or 3.7% of our GDP.

Not even close to the postwar record 6% of GDP posted in 1983.

[Rightwing Conspiratr1]

So, in your humble opinion, who should be our next President?

Well obviously it needs to be someone very fiscally conservative, someone who would really hold the GOP congressmen's feet to the fire, some who would use that bully pulpit, use that veto pen, refuse to propose spending bills, and instead propose cuts. Someone to remind them of how we sent them to reduce the size of government, to get the government off our backs, and off our small businesses backs, and stop regulating us into poverty. Someone who could shame them into acting like conservative Republicans instead of socialist Democraps.

Well SH*T, It looks like I am your man.

[Ichneumon]

Well SH*T, It looks like I am your man.

I like your stump speech -- you've got my vote!

[Rightwing Conspiratr1]

I like your stump speech -- you've got my vote!

JimRob could have made the speech. Besides he's much better looking, and could get more of the female vote (sucking up). Well heck there's probably a thousand freepers who could make it. There's got to be someone in GOP who can make that speech.

[remember]

That is correct. Deficit reflected as a percentage of the GDP, rather than in absolute dollars is a better indicator.

No, what is important is the size of the DEBT relative to the size of the economy (the GDP). It is the DEBT, not the DEFICIT, that we and our children will have to pay interest on forever (unless we pay it back).

As can be seen in the table at http://home.att.net/~rdavis2/debt05.html, the projected gross federal debt is projected to reach 71.1 percent of GDP in 2008, it's highest level since 1954. According to Bush's most recent budget, however, it gets much worse after the Boomers retire. As can be seen in the table at http://home.att.net/~rdavis2/pro2005.html, the public debt is projected to reach 432 percent of GDP by 2080. Of course, something will give long before we reach that point.

[Brilliant]

I don't think the theory actually states that. What it states is that if you are experiencing weak growth, you can stimulate the economy by running a deficit. Of course, the Keynesians preferred government spending to tax cuts, but the theory states that either will do. When I was studying it in college, our professor made the argument that spending is more stimulative than tax cuts. What he was ignoring is the supply side effect.

[eno_]

That is correct. Deficit reflected as a percentage of the GDP, rather than in absolute dollars is a better indicator. The tax cuts have expanded the tax base, just as they did under Reagan. They need to be made permanent, and of course get this spending spree under control.

You are correct that the deficit as a percent of GDP is the honest way to report the numbers, but this is also a broad indicator that government keeps expanding, even when the GOP controls both sides of Capitol Hill and the White House.

The GOP has no purpose if it can't hold government growth below the level of GDP growth.

[snowsislander]

Exactly. The deficit for any one year is not nearly as important as those accumulated deficits becoming a large debt. Back when we were the world's great net creditor nation, an occasional deficit was regrettable but not tragic. After 40 years, it is really double-plus ungood:

Source: Federal Reserve Board (see my homepage)

I also prefer to compare the GDP to the debt level; the fairer comparison for the change in the debt level (ie, the deficit) is to compare it with the change in the GDP. Our debt level has been growing 4-5% for the last few years, while our change in GDP has been far lower over the same. That's bad. If we must run a deficit, let's at least keep it below the growth in GDP; it will make it easier to service the interest on the debt.

What would be better of course is to run both a trade surplus and a fiscal one also.

[seastay]

"The shortfall will be the third consecutive - and ever-growing - deficit under Bush, following four consecutive annual surpluses under President Clinton. "


The money that was recorded as being surplus during the Clinton administration was virtual and phoney money, the investments were inflated - as was all of the stock market, when the bubble broke Bush was left to pick up the pieces, along with the war he has done fine job.

[TedsGarage]

The best way to control spending is to elect a Democratic president and a Republican Congress - or vice-versa. Democrats spend too much, Republicans cut taxes too much. Flame me and tell me an all-Republican government provides the best fiscal discipline. I don't see the results.

[remember]

I also prefer to compare the GDP to the debt level; the fairer comparison for the change in the debt level (ie, the deficit) is to compare it with the change in the GDP. Our debt level has been growing 4-5% for the last few years, while our change in GDP has been far lower over the same. That's bad. If we must run a deficit, let's at least keep it below the growth in GDP; it will make it easier to service the interest on the debt.

Very astute. You're the only other person I've heard who has suggested the correct way to look at the deficit if you're concerned about its effect on the debt. I sat down once and looked at the actual mathematical relationship and wrote the following explanation at http://home.att.net/~rdavis2/def05.html:

The following points show the relationship between deficits and their corresponding debts. This is important since it is the debt that we are paying interest on and are obligated to pay back. The figures for the debts can be found at http://home.att.net/~rdavis2/debt05.html.

4) The gross deficit is projected to reach 6.3 percent of GDP in 2004 and decrease to 4.3 percent of GDP by 2009. Meanwhile, the gross debt is projected to continue rising as a percent of GDP, reaching 71.9 percent of GDP in 2009. In order for the gross debt to stabilize at the current 62.4 percent of GDP, the gross deficit would need to stabilize at 62.4 percent of the projected growth in GDP. As GDP is projected to grow at about 5.2 percent from 2004 to 2009, the gross deficit would need to stabilize at about 3.2 percent of GDP.

5) The public deficit is projected to reach 4.4 percent of GDP in 2004 and decrease to 1.7 percent of GDP by 2009. Meanwhile, the public debt is projected to stabilize at about 40 percent of GDP through 2009. In order for the public debt to stabilize at 40 percent of GDP, the public deficit needs to stabilize at 40 percent of the projected growth in GDP (about 5.2 percent). This works out to about 2.1 percent of GDP.

[smoothsailing]

Ok, fine.

But in the mean time, shouldn't you and I do all we can to make sure President Bush has a second term?

Heck, we've got over 4 years to get your campaign up and running.