Congress: $1.4 Trillion Budget Gap Over 10 Years
Congress Budget Office Projects $1.4 Trillion Budget Gap Over 10 Years
With proposed spending, tax cuts extension budget deficits could grow even more
By Andrzej Zwaniecki - Washington File Staff Writer
Washington -- A congressional budget monitoring group is projecting U.S. federal government budget deficits totaling $1.4 trillion over the 10 years from 2004 through 2013.
In a bi-annual budget and economic outlook published August 26, the Congressional Budget Office (CBO) forecast that the federal budget deficit will peak in 2004 at $480 billion and gradually decline thereafter until it turns into a small surplus in 2012.
However, the CBO cautioned that its projections are based on current law and do not reflect costs of many likely future legislative and policy changes. Congressional analysts estimate, for example, that making permanent the tax cuts enacted in the past three years would cost additional $1.5 trillion over 10 years. Other costs likely to boost budget deficits include those of a new prescription drug program for the elderly and a proposed reform of the alternative minimum tax, a separate system of income taxation affecting a growing number of taxpayers.
The Center on Budget and Policy Priorities, a liberal policy research group, estimates that these and other likely costs could produce a combined 10-year budget deficit of $5.1 trillion, with deficits exceeding $400 billion in every year and reaching $650 billion by 2013.
CBO Director Douglas Holtz-Eakin warned that huge budget deficits would have real economic consequences, including higher interest rates, lower national savings and rapidly growing government interest payments that would either crowd out other government programs or contribute to rising government debt, according to news reports.
The White House budget deficit outlook released in July by the Office of Management and Budget (OMB) did not go beyond the year 2008. But it projected roughly a halving of the budget deficit from $455 billion in 2003 to $220 billion in 2008.
"The administration's plan to cut the deficit in half is a combination of strong economic growth and spending restraint, " Trent Duffy, the OMB spokesman, reportedly said August 26. "The economy appears to be picking up steam, and now we should focus on keeping spending in check."
The CBO forecasts that the U.S. economy will expand at a rate of 3.8 percent in 2004, up from 2.2 percent projected for 2003, and continue to grow relatively fast thereafter.
The White House cautioned that long-term budget projections are inherently unreliable.
"The only thing we know about 10-year projections is that they are terribly, terribly wrong," Duffy said. "In 1993, 10 years ago today, CBO did not predict that in the late 1990s we would have a surplus."
Robert Greenstein, director of the Center on Budget and Policy Priorities, said during an August 27 teleconference with reporters that CBO projections, indeed, are rarely completely right. He cited the 2001 CBO budget projections of surpluses extending from 2002 to 2011 as too "rosy." But, he said, the technical corrections related to more realistic outlook are responsible for only 33 percent of the change in CBO budget projections from $5.6 trillion in cumulative surplus to $4.4 billion in cumulative deficits over the same 10 years. Another 36 percent comes from enacted or expected tax cuts and 31 percent from spending increases, especially for defense and homeland security, Greenstein said.