WASHINGTON — Despite recent signs of an improving economy, the federal budget's outlook has "deteriorated substantially" in the last six months, and a record deficit of at least $480 billion is projected for 2004, according to the nonpartisan Congressional Budget Office.
The deficit will grow even larger, the CBO said in a report released Tuesday, if Congress enacts a prescription-drug benefit under Medicare, makes permanent a raft of tax cuts due to expire by decade's end and approves other tax relief proposals. Those initiatives could add $5 trillion or more to the deficit over the next decade, the report estimated.
Douglas Holtz-Eakin, the budget office's director, said there is no sign yet that the burgeoning deficit has hurt the economy.
But it could become troublesome if it continues to grow and if lawmakers do not pick and choose among the various spending initiatives and tax cuts pending in Congress.
"Choices do matter," Holtz-Eakin said. "We can't do everything simultaneously."
On other economic fronts, the new report offers a mixed picture. While the CBO predicts increased economic growth from now to the 2004 elections, it foresees no significant reduction in the unemployment rate, which was 6.2% in July.
By contrast, a report last month by the White House's Office of Management and Budget predicted that unemployment would drop to 5.6% in 2004. The OMB was also more optimistic than the CBO on the 2004 deficit, which it predicted would be $458 billion if current policies were unchanged.
For 2003, the OMB predicted a $455-billion deficit; the CBO expects it to run to $401 billion.
The discrepancies are largely caused by different technical assumptions by the two offices.
The Center on Budget and Policy Priorities, a liberal research group, warned that if the deficit is not reined in, it would jeopardize the government's ability to pay for the impending retirement of the baby boom generation.
The Bush administration and its allies argue that, as it conducts its war on terrorism and tries to improve a struggling national economy, balancing the budget has to take a back seat to spending on homeland security, national defense and other matters.
"The budget can be balanced within a few years if we ignore these priorities, but fortunately, this president and Congress have chosen to address them," said Hazen Marshall, GOP staff director for the Senate Budget Committee.
