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New Estimate Sees Deficit Heading to Record $400 Billion for Year

June 11, 2003|Peter G. Gosselin | Times Staff Writer

WASHINGTON -- The federal government is headed for a record $400-billion deficit this fiscal year, the product of a weak economy, the war in Iraq and a series of tax cuts, the nonpartisan Congressional Budget Office warned Tuesday.

The higher deficit projection was not completely unexpected after President Bush and Congress agreed to another round of tax cuts, which will cost the government $61 billion in foregone revenue this fiscal year alone. The fiscal year ends Sept 30.

But the figure represents a substantial jump from the CBO's estimate last month that the deficit would be just over $300 billion. If the latest projection proves correct, it will be the largest deficit the government has run in terms of dollars and among the biggest as a fraction of the economy in the post-World War II era.

It would also mark the second straight year that Washington has run in the red, an abrupt reversal from the final term of the Clinton administration when the government ran four years of surpluses.

Until now, the biggest deficit in dollar terms was $290 billion, racked up in 1992. But as a share of gross domestic product, the biggest deficit of the postwar period was 6% in 1983. CBO estimates that this fiscal year's deficit will be about 4% of GDP.

In a sign the issue is likely to play a prominent role in the upcoming presidential election, the new deficit estimate set off an exchange of finger-pointing between Republicans and Democrats.

"Democrats have repeatedly cautioned that Republican tax cuts will create large deficits while doing little to create jobs,'' said Rep. John M. Spratt of North Carolina, the ranking Democrat on the House Budget Committee. The new CBO estimate "unfortunately provides the latest evidence that Republican economic policies are taking the country down the wrong path."

To the contrary, shot back White House budget spokesman Trent Duffy. The new numbers, he said, show the economy is recovering, but weak.

"The best way to get back to balance is to follow the president's economic agenda for faster growth, more jobs and slowing the growth of spending,'' Duffy said.

But even the Bush administration has projected a steady growth in the budget deficit for several more years.

CBO said it expects the government to post a $90-billion deficit for May, $9 billion more than a year ago and a jarring about-face from April when the Treasury said Washington ran a $51-billion surplus.

The CBO said that in May, government outlays were up $9 billion, or 5%, from a year ago, largely because of higher defense spending for the war in Iraq. The agency said the deficit for the eight months of the fiscal year through May totaled $291 billion, or twice the $145-billion shortfall of a year ago.

CBO said that the recently approved $350-billion package of mostly tax cuts will begin to affect the government's finances when reductions in the amounts withheld from Americans' paychecks trim $5 billion a month from individual tax receipts in July, August and September.

The CBO said the government will begin sending out billions more in refunds to taxpayers with children starting in late July, and added that it expected businesses shortly to begin trimming the amount they pay Washington.

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