The federal budget-deficit picture turned brighter Monday as congressional scorekeepers released new estimates showing the level of red ink for the current fiscal year would drop to $331 billion.
The new report by the nonpartisan Congressional Budget Office, which does budget analysis for lawmakers in Washington, gave the latest proof that surging revenues and a steadily growing economy are combining to bring the deficit down from a record $412 billion posted last year. CBO predicts a $314 billion deficit for the budget year starting Oct. 1.
The report is welcome news for President Bush, who has seen the budget situation deteriorate markedly from predictions of unending surpluses when he took office in January 2001.
“The CBO report confirms the dramatic improvement in the 2005 deficit picture that the administration reported last month,” said Scott Milburn a spokesman for the White House budget office. “A strong economy fueled by tax relief is generating stronger-than-projected revenues.”
The White House foresees a $333 billion deficit for the year that’s about to end and a $341 billion deficit for next year.
Last year’s deficit was a record in dollar terms, though many previous deficits in the mid-1980s and early 1990s were larger when measured against the size of the economy. The White House and most economists say that the more relevant measure of the deficit is to weigh it against the size of the economy. Measured that way, the latest estimates for this year are slightly worse than recent historic averages.
But Democrats on Capitol Hill were quick to issue warnings about the long-term deficit picture, which will worsen considerably after the Baby Boom generation starts retiring in large numbers after the turn of the decade.
Long-term outlook called dire
“While this year’s deficit will be lower than last year’s record shortfall, the improvement is likely to be short-lived. Declarations of victory over budget deficits only distract from the disturbing long-term budget outlook,” said Kent Conrad of North Dakota, top Democrat on the Senate Budget Committee.
Unlike White House estimates released last month, CBO assumes that Bush’s tax cuts are allowed to lapse at the end of the decade. Most of the cuts in Bush’s signature $1.35 trillion tax relief law enacted in 2001 expire by 2010, but many lawmakers and the White House assume that they will be renewed by then.
Even if the tax cuts were allowed to expire, the budget would still stay in the red through the full 10 years covered by CBO’s report.
If the tax cuts are renewed, the deficit picture would worsen by $204 billion in 2011 — to perhaps $327 billion or so. By 2015, the cost of extending the 2001 and subsequent tax cuts would reach $432 billion.
By CBO’s scorekeeping rules, the agency must also assume that the costs of occupying Iraq and Afghanistan will stay at current levels, which probably inflates long-term projections. Congress in May passed an $82 billion measure to provide more war funding, and CBO must assume spending would continue at that rate.
Surpluses vanished three years ago
The projection for the deficit at the end of the current budget year on Sept. 30 remains far worse than when Bush took office. At that time, both White House and congressional forecasters projected cumulative surpluses of $5.6 trillion over the subsequent decade.
Instead, deficits returned three years ago after four years of budget surpluses. The chief reason was that forecasters assumed that a surge in revenue in the late 1990s — fueled in large measure by the stock market boom — would continue.
The economy hit a recession, the market tumbled and a surge in homeland security spending after the Sept. 11, 2001 terror attacks combined to produce a return to deficits.
In early 2004, Bush said his goal was to cut the deficit in half in five years. Then, the White House forecast the deficit to be $521 billion for the 2004 budget year, and the president said his goal was to see that halved, to about $260 billion by 2009.