U.S. deficit to hit record $445 billion; growth slips

By Dana Milbank
The Washington Post

E-mail this article Print this article Search archive Most read articles Most e-mailed articles

President Bush's budget director, while calling the figure "unwelcome," said the new forecast for fiscal year 2004 — in line with recent congressional forecasts — provides evidence that the economy is growing and tax receipts are recovering. The message echoed a new refrain in Bush's campaign speeches, voiced repeatedly yesterday in Missouri: "We're turning the corner, and we're not turning back."

But Democrats — and the campaign of presidential nominee John Kerry — countered that the new estimate looked good only in comparison to a previous estimate of $521 billion that was unrealistically high, and that the deficit still is on pace to be $70 billion more than last year's $375 billion.

Further clouding the economic picture, the Commerce Department announced that economic growth slowed sharply in the second quarter, to an annual rate of 3 percent from a revised rate of 4.5 percent in the first quarter. Dragged down by the lowest consumer spending in three years, a response to high gasoline prices, the quarterly growth rate was the lowest since the first quarter of 2003.

In addition, the Labor Department announced yesterday that from the start of 2001 to the end of 2003, 11.4 million workers were displaced from jobs, 5.3 million of them from jobs they had held for three or more years. Although two-thirds of the 5.3 million found new jobs, 57 percent of those who did find work earned less than they had previously.

Still, the White House declared a qualified victory. "The deficit remains at a level that we think is unwelcome," said Joshua Bolten, director of the Office of Management and Budget. "The good news is that it is much lower than we projected, and we or any of the other forecasters projected just six months ago, and we believe that that is a product of the strong economic policies that the president has put in place, and that the trend will continue."

Bolten said the government was ahead of pace to reach Bush's pledge that the deficit would be cut in half over five years. But he said the target for the reduction would be based not on an actual deficit but on the earlier, overstated deficit forecast for 2004. He also said the predicted reduction would be based not on actual dollars, but on the deficit as a percentage of gross domestic product. The deficit for fiscal 2004, which ends Sept. 30, would be 3.8 percent of gross domestic product, Bolten said, well below the modern high of 6 percent in 1983.

The White House projected a deficit of $331 billion for fiscal year 2005, which begins Oct. 1, then fading to $229 billion by 2009. But Bolten said declining deficit projections for the next four years did not include additional emergency spending, expected to reach tens of billions of dollars. "You need to factor in that we will need additional spending, at least in the short term, in both Iraq and Afghanistan," he said.

Democrats ridiculed the White House's upbeat portrayal of the statistics. "The administration announces the largest deficit in the history of the United States, and they claim things are getting better. That is a remarkable claim," said Kent Conrad, D-N.D., ranking Democrat on the Senate Budget Committee. "It's a little like the captain of the Titanic saying there's good news as the ship goes down, because it's not sinking as fast as he'd said it would."

Kerry's campaign noted that the reduced deficit forecast for 2004 is $800 billion worse than the Congressional Budget Office forecast in 2001 for this year. Bolten said the deficits came from "an extraordinary confluence of adversity," including the terrorist attacks and corporate scandals. He did not list tax cuts as a cause.

The White House did not offer forecasts beyond five years. The Committee for a Responsible Federal Budget, a bipartisan group, said "the problems only get worse" after that period, when increasing numbers of baby boomers will retire and become eligible for Social Security and Medicare.
 
The White House report yesterday increased projections of costs for the Medicare and Social Security programs, increasing the Medicare cost by $67 billion and Social Security by $59 billion over five years.

The report marked just the beginning of election-year budget sparring. The budget director also said the federal government would reach its debt ceiling in early October, which means Congress will be called upon to increase the debt limit in the weeks before the election. But Bolten said Bush expects to ask Congress for additional money for Iraq early next year, which would avoid a pre-election showdown.

Background by The Associated Press is included in this report.