Deficit will grow unless tax cuts expire

WASHINGTON — Making President Bush's tax cuts permanent will prolong big budget deficits into the next decade, the nonpartisan Congressional Budget Office (CBO) projected Thursday.

But if those tax cuts are allowed to expire after 2010 — effectively a tax increase Bush has sworn to oppose — the budget would begin showing a surplus in 2012, the CBO's budget projections showed.

The CBO forecast a $337 billion deficit for this fiscal year and lingering deficits through the end of the decade, offering a pessimistic backdrop as Bush prepares to release his 2007 budget request.

The deficit fell to $318 billion last year after three years of sharp increases, and Republicans had hoped the tide of red ink was receding. But spending on hurricane relief will push the deficit back up in 2006.

Additional spending on the war in Iraq and federal flood-insurance claims, not counted in CBO's official projection, is likely to leave the deficit about $360 billion by Sept. 30, when the current fiscal year ends, said the acting CBO director, Donald Marron.

Assuming a phase-down of troops in Iraq and an extension of expiring tax cuts, the CBO projected that Bush will not meet his goal of cutting the deficit in half by 2009. Indeed, under those assumptions, the deficit would dip no lower than $222 billion before swelling back to more than $300 billion by 2016.

These projections do not include a fix to the increasingly onerous alternative minimum tax. That would keep the average deficit higher than $300 billion in the next 10 years, with the red ink topping off at $405 billion in 2016, CBO projections say.

"Not much has changed," said Marron, formerly a senior economist in the Bush White House.

That conclusion came after a legislative year dominated by budget fights. A bill to cut nearly $50 billion from entitlement programs such as Medicare and Medicaid brought out deep divisions in the Republican Party and has yet to win final passage.

The CBO forecast will challenge Republicans to cut still deeper in an election year, especially because Bush once again urged making the tax cuts permanent.

The forecast will also fortify Democratic charges that budget cuts will never suffice until Republicans accept that the deep tax cuts of Bush's first term must be reversed, at least partially.

The $360 billion deficit forecast is in line with many private-sector projections, although it is lower than a recent White House forecast that put this year's deficit at more than $400 billion. Those projections have reinvigorated GOP calls for spending restraint.

Material from USA Today is included in this report.