Budget deficits are back, White House says

By Alan Fram

Associated Press

WASHINGTON – Congressional Democrats blamed President Bush and his tax cut today for the return of federal deficits, a day after the White House budget chief said he expects shortfalls for at least the next three years.

Mitchell Daniels, the administration’s budget director, blamed his prediction on the recession and the war against terrorism.

But Democrats said the real culprit was the 10-year, $1.35 trillion tax cut Bush helped muscle through Congress last spring, over complaints by most Democrats that it would jeopardize federal surpluses.

“I’d love to be able to say, ‘I told you so,’ ” Senate Majority Leader Tom Daschle, S.D., told reporters.

The Senate Budget Committee chairman, Sen. Kent Conrad, D-N.D., said that when Daniels blamed the recession and terrorism, “He left out the biggest cause – the tax cut this administration pushed and got passed.”

In his remarks Wednesday, Daniels defended the tax cut, calling it “a major reason why this recession, many are saying, may prove short and shallow.”

Daniel’s bleak prediction was the first public acknowledgment by the Bush administration that after a string of four consecutive annual surpluses under President Clinton, deficits are back. Prior to the $69 billion surplus rung up in fiscal 1998, the last federal black ink had been in 1969.

“It is regrettably my conclusion that we are unlikely to return to balance in the federal accounts before possibly fiscal ‘05,” Daniels said in a speech at the National Press Club. He added, “Things will have to break right for us to do that.”

With a war under way and an ongoing danger of domestic terrorism, Americans are less concerned, at least for now, about budget deficits than they once were.

Even so, a reversion to the deficits that long dominated the capital’s fiscal wars seems to present Bush with a significant political liability that now seems likely to haunt him right up to his 2004 re-election campaign. And it augurs a likely return to the annual partisan fights over where spending should be cut to balance the budget.

Private and congressional analysts have been saying for weeks that they expect a deficit in fiscal 2002, which began Oct. 1, well into the tens of billions of dollars. Daniels provided no figure.

Underlining the dramatic economic turnaround, fiscal 2000 saw a record $237 billion surplus that shrank to a $127 billion surplus in fiscal 2001. As recently as August, the Bush administration predicted a 2002 surplus of $173 billion, down from its $231 billion forecast made in April.

In fact, until several months ago, most forecasters were envisioning an ever-growing string of budget surpluses for the next decade, fading only when the huge baby boom generation begins to retire.

But then the recession – now officially pegged as having started in March – took hold, and the condition of the government’s books weakened. The $1.35 trillion, 10-year tax cut Bush pushed through Congress last spring further eroded the projected black ink.

The Sept. 11 terrorist attacks dealt a severe blow, staggering the economy and triggering tens of billions in spending for anti-terrorism, the war in Afghanistan and economic recovery.

Daniels acknowledged that as a result, the administration would lower its long-term growth estimates, which means the government would expect to collect less revenue than it would with stronger growth.

“This has profound effects, when compounded out over time, on the amount of money that we can expect to have available in the federal treasury,” Daniels said.

To try to force a return to surpluses, Daniels said the administration would propose a fiscal 2003 budget early next year that is generous toward defense, anti-terrorism and other high-priority programs, but seeks to trim programs that seem less necessary.

He cited the National Science Foundation and food aid for women, infants and children as important and effective programs. He said the government has too many job-training programs and seemed to suggest that border protection programs could be made more efficient.

He also said the budget would propose taking some automatically paid benefits and changing their status so they must be approved annually by Congress or the money would not be spent.