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Administration Puts Fiscal Year Deficit at $159 Billion

October 25, 2002|From Associated Press

WASHINGTON — The government ran a $159-billion deficit in the fiscal year just ended, the Bush administration said Thursday, punctuating one of the federal budget's worst nose-dives just 12 days before elections for control of Congress.

The figure was not a surprise and largely reflected an ongoing dip in federal revenue collections. But it was nonetheless noteworthy for its contrast with the $127-billion surplus -- the second largest ever -- shown by the government's books a year before.

Though Democrats hope the budget's deterioration will help them in the midterm elections, many analysts and officials from both parties believe the return of deficits after four straight years of surpluses will have a minimal political impact. That is because the public seems more focused on the flagging economy and the threat of terrorism and blames those issues -- not politicians -- for the revived red ink.

"It's important, but nobody's paying attention," said Robert D. Reischauer, president of the nonpartisan Urban Institute and former director of the nonpartisan Congressional Budget Office.

In a written statement, White House Budget Director Mitchell E. Daniels Jr. blamed the red ink on needed defense and domestic security expenditures, and the end of a federal revenue surge fed by the booming economy of the late 1990s.

"Given these two developments, it is absolutely essential that we set aside business as usual and keep tight control over all other spending," he added, repeating a demand the administration has often made of Congress.

Treasury Secretary Paul H. O'Neill said the flat economy, stock market drop and costs of responding to the Sept. 11 terrorist attacks "created a deficit. But going forward, I am confident that we are on the road to recovery and stability."

Democrats tried to blame the fiscal turnabout on Republicans in hopes of enhancing their chances of capturing House control and strengthening their hold on the Senate in the Nov. 5 elections. They have long blamed the budget's decline -- especially in the long-term -- on the 10-year, $1.35-trillion tax cut that President Bush won from Congress last year.

"Republicans are responsible for the biggest fiscal reversal in history," said Thomas Kahn, Democratic staff director of the House Budget Committee. "The $5.6-trillion surplus has vanished."

In January 2001, the CBO projected that surpluses would total $5.6 trillion in the decade from 2002 to 2011, an unprecedented bundle of federal cash.

But with the recession, the costs of terrorism and the tax cut, the budget office estimated in August that the surplus for that same period would be $336 billion. Both the White House and the CBO say they expect annual deficits to continue for the next several years.

Many analysts say those projections are optimistic because they assume that future federal spending will grow by only about the rate of inflation, when in fact it has grown much faster than that in recent years.

Democrats also argued the shortfall would look even larger were it not for last year's Social Security surplus, which was about $160 billion.

This year's shortfall is expected to have a minimal effect on the country's $11-trillion economy. But if deficits persist, they could constrict policymakers' abilities to boost spending for priorities like defense and schools or to cut taxes further, ensuring years of partisan budget warfare.

Administration officials had been predicting for nearly a year that the government would be back in the red in fiscal 2002 after running surpluses every year since 1998. Many analysts saw that as an effort to get the bad news out early and gradually, rather than dumping it out all at once just before election day.

Congressional aides had been told to expect the deficit figure to be released today. White House officials instead provided the number a day early.

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