The nation's budget deficit will drop to $205 billion in the fiscal year that ends in September, even as a worsening deficit picture for future years makes it more difficult for President Bush to meet his pledge of a surplus by 2012.
The deficits figures released by the White House Wednesday show red ink less than half of what it was at its peak in 2004. It's also a gain over the $244 billion that Bush predicted in February, but not as great an improvement as anticipated by other forecasters.
But the new figures show an increase in the deficit next year to $258 billion. Bush promises a $33 billion surplus in 2012.
The deficit last year was $248 billion and has closed in recent years due to impressive tax revenue growth from a relatively healthy economy. Bush and Democrats in Congress have both promised to erase the deficit by 2012, though they have greatly divergent views on how to achieve the goal, with Bush and Republicans insisting on extension of his 2001 and 2003 tax cuts when they expire at the end of 2010.
Bush credited his tax cuts with fueling the economy and closing the deficit.
"A growing economy has led to growing tax revenues because people who are making more money are also paying more taxes," Bush said Wednesday. "These growing tax revenues, combined with spending restraint, are driving down the federal deficit."
Bush also slammed congressional Democrats' budget plans for increasing spending and boosting spending for myriad domestic programs.
"Tax and spend policies are the policies of the past and I'm going to use my veto pen to keep it that way," Bush said.
Democrats in Congress pushed through a budget plan in May that projects the budget to be in the black in five years as well. But they promise more than $200 billion in additional spending for domestic programs and are likely to allow tax cuts on wealthier taxpayers to expire in 2010.
The latest deficit figures are generally in line with expectations, as the early quarters of the 2007 fiscal year that began in October had shown continued revenue improvements. But the pace of such revenue growth has slowed more recently, according to the Congressional Budget Office.
CBO, which makes budget predictions for Congress, has estimated the deficit for the ongoing budget year will range from $150 billion to 200 billion.
The deficit peaked at $413 billion in 2004, though economists say the best way to measure it is in relation to the size of the economy. By that standard, the current deficit, at 1.5 percent of gross domestic product, is the lowest since 2002.
White House predictions
Deficit estimates tend to bounce around and the fluctuations seen in Wednesday's report are modest compared to an economy expected to grow to almost $18 trillion in five years. Relative to its February prediction, the White House sees $137 billion in additional deficits spread over 2008-2012.
The White House sees the economy growing at a 2.1 percent pace in the current year, slightly less than the 2.7 percent predicted in February.
It also sees a slight worsening in income growth as evidenced by lower growth in income and payroll tax receipts than predicted in February.
The deficit picture remains worse than when Bush took office six years ago. Then, both White House and congressional forecasters projected cumulative surpluses of $5.6 trillion over the subsequent decade.
But a revenue bubble burst, a recession and the Sept. 11, 2001, terrorist attacks adversely affected the books. Several rounds of tax cuts, including Bush's signature $1.35 trillion 2001 tax cut, also contributed to the return to deficits in 2002 after four years of budget surpluses.
Bush's promise to produce a surplus by 2012 rests on the unlikely assumption that there will be no supplemental war costs for Iraq and Afghanistan in that year.
"Nothing in the administration's deficit announcement changes the failed fiscal record of President Bush," said Senate Budget Committee Chairman Kent Conrad, D-N.D. "He has increased spending by nearly 50 percent since taking office, while at the same time repeatedly cutting taxes primarily on the wealthiest."