Federal Deficit to Hit Record $480 Billion in 2004, CBO Predicts
The nonpartisan budget office also confirmed an earlier projection that this year’s deficit would reach $401 billion. That estimate for the fiscal year ending Sept. 30 is well above the highest previous shortfall, which was $290 billion in 1992. However, the deficit as a percentage of GDP is lower than it was in the mid-1980s and is estimated to be about 4 percent of the total value of goods and services produced in the United States in 2003.
The CBO’s 2004-13 deficit estimate of $1.397 trillion reverses previous predictions that the federal government would still take in more than it spends over the coming decade.
The CBO predicted budget surpluses for 2012 and 2013, but it also cautioned that those numbers were based on the assumption that Congress will allow several tax cuts enacted in recent years to expire in 2010.
The projections are based on current law and policies, with projected changes in spending and revenues based on estimates of inflation and changes in GDP.
The White House last month predicted that federal budget deficits would reach $455 billion this year and $475 billion in 2004.
The Bush administration has blamed the reversal from budget surpluses to perennial deficits on the faltering economy, the Sept. 11 attacks and the subsequent sharp increases in defense and homeland security costs. The White House says the fiscal situation will improve as the economy, bolstered by President Bush’s tax cuts, becomes more robust.
Rep. John Spratt of South Carolina, ranking Democrat on the House Budget Committee, contended that budget projections already assume strong growth of more than 3 percent a year over the next few years. “Even with growth we still have deep deficits getting even deeper,” he told the Associated Press.
The CBO forecasted that economic growth will accelerate considerably next year, with real GDP rising at a rate of 3.8 percent in 2004, up from 2.2 percent in 2003. It also forecasted that unemployment will nevertheless remain high, averaging 6.2 percent both this year and the next.
The spending estimates used for 2004-13 deficit projections include $80 billion in additional spending in 2003 for the war in Iraq. Cost for U.S. involvement in Iraq was included in the budget projections by assuming the $80 billion figure would grow at the rate of inflation. If that $80 billion were taken out of the spending projections, the CBO reports that the 10-year deficit would shrink to $400 billion.
The CBO’s deficit projections did not take into account new spending programs, such as a possible $400 billion Medicare prescription drug plan.
If most of the expiring tax provisions were extended and a prescription drug benefit were added to Medicare, the CBO calculates that the “baseline budget outlook projected for 2013 would change from a surplus of $211 billion to a deficit of $324 billion.”