By John W. Schoen Senior producer
updated 1/21/2004 4:57:07 PM ET 2004-01-21T21:57:07

President Bush’s election-year State of the Union address before Congress Tuesday night put a spotlight on the growing U.S. budget deficit. And with this year’s presidential campaign heating up, the growing gap between government revenue and spending will likely remain at center stage in that political battle, analysts say.

“I think the president is clearly under pressure from his conservative base,” said Andy Laperriere, managing director at ISI Group, a brokerage and economic research firm in Washington, D.C. “I think they also have an eye on the financial markets in wanting to show that the president is serious about getting control of the deficit.”

In his speech, Bush said the deficit — expected to top $500 billion this fiscal year — could be cut in half over five years by slowing growth in spending on many programs to under four percent a year. But without net reductions in spending — or tax increases — the plan to shrink the deficit just doesn’t add up, according to Stan Collender, a budget expert at public relations giant Fleishman-Hillard.

"Not only is it not realistic, it's completely contradictory, not unless you are going to hold spending down even further than he is talking about," he said.

Bush gave few details Tuesday night on where spending should be curbed; those will be included in the $2.3 trillion budget plan he will send to Congress on Feb. 2.

And the numbers in Bush's deficit cutting plan don’t include future spending increases, or even the permanent tax cuts Bush is proposing, according to Chuck Gabriel, a senior political analyst at Prudential Financial in Washington.

“What they're really hoping is that if you ignore future costs in war on terrorism and you ignore the costs of extending these expiring tax provisions — which are a trillion dollars — then the (Congressional Budget Office) would suggest that, yeah, in fact the $480 billion dollar deficit this year will trend down and be cut nearly in half, " he said. “But it is very, very optimistic, to say the least to be able to talk about cutting the deficit — or that trajectory -—in half without making cuts. And they are proposing no cuts.”

In fact, Bush suggested increasing spending by $500 million job on training in his Tuesday speech. In Ohio Wednesday, he highlighted that proposal as he repeated his upbeat assessment of the nation’s economic health.

"Nationwide, this economy is strong," Bush told an audience of faculty and students at Owens Community College near Toledo. "Housing is up, inflation is low, interest rates are low ... Things are happening."

While the economy has grown rapidly in recent months, jobs growth has lagged; payrolls grew by just 1,000 in December. But Bush and his economic advisors maintain that recent tax cuts totaling some $1.7 trillion over ten years have stimulated the U.S. economy, which will eventually create new jobs. As those new jobs generate more taxes, the administration says, the federal budget deficit can be reduced without raising tax rates.

"The American economy is growing stronger," Bush said to applause from Congress Tuesday night. "The tax relief you passed is working."

Private economists have expressed concerns that job growth has not accompanied the economic rebound, but in his speech Bush said simply: "Jobs are on the rise."

Without strong job growth, Bush’s call to make tax cuts permanent will face a major political battle, according to Ethan Siegal, president of the Washington Exchange, an adviser to institutional investors.

"That's going to be the number one fight this year," he said. "The odds are that there are enough votes to block it."

Federal tax cuts also will be made more difficult by the widespread fiscal problems at the state level. The head of the teachers' union at the community college where Bush spoke Wednesday, for example, said the president's job training proposal falls short of meeting critical needs.

"It's merely a drop in the bucket when you compare it to the drop in the state budget cuts to higher education," said Angela Ondrus, president of the faculty association at Owens Community College.

An ABC News/Washington Post poll released Tuesday showed a slim majority of Americans approved of how Bush was handling the economy. But 50 percent said they would prefer if Democrats held the economic reins, compared to 43 percent backing Bush.

Regardless of whether the numbers add up in his deficit-cutting plan, Bush’s speech was about politics, not economics. That may be one reason Bush chose to stress ideology over math, according to Andrew Parmentier, and economic and policy analyst at Friedman Billings and Ramsey.

“His speech (Tuesday) night was more value driven; it almost had a Biblical or church-like overtone to it,” he said. “And this is becoming a very classic Bush type of speech that he gives: ‘Trust me with the economy, trust me with the war, because I'm principled. I'm valued. I'm moral. I know what's right. I know what's wrong. I want to be a good steward of your money.’ I thought the ending of his speech last night was incredibly powerful.”

(Reuters contributed to this report.)


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