Big fiscal changes since Bush offered first budget in 2001

By Alan Fram
The Associated Press

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Bush's $2.3 trillion budget for fiscal 2005 will woo voters by proposing to make already enacted tax cuts permanent and will probably seek tax breaks for savers and for low-income people's health costs. It also will call for more money for defense, domestic security, education, space and the global fight against AIDS, according to administration officials, congressional aides and lobbyists.

Budget then and now Some changes in the government's fiscal condition since President Bush submitted his first budget to Congress in 2001. • Bush's first budget projected annual surpluses from 2002 through 2011 would total $5.6 trillion, before his tax and spending proposals took effect. In its most recent projection last summer, the nonpartisan Congressional Budget Office (CBO) said it expected $1.4 trillion in total deficits from 2004 through 2013, excluding any future tax or spending changes. • The cumulative national debt stood at $5.7 trillion when Bush took office, and his first budget proposed reducing it by $2 trillion over the next decade. Today, the debt stands at $7 trillion. • Bush's first budget projected that in fiscal 2004, which runs through Sept. 30, the government would spend $2.077 trillion. Instead, it will spend $2.305 trillion, according to the latest CBO estimate. Bush's first budget also estimated the government would raise $2.339 trillion in revenue this year. The CBO projects $1.825 trillion in revenue. • Bush's first budget predicted a surplus of $262 billion for this year; the CBO now is forecasting a 2004 deficit of $480 billion.

His overall proposals, however, are sure to be less ambitious than those in his first budget in 2001, when he and others envisioned $5.6 trillion in surpluses over the next decade.

Bush used that blueprint to seek 10-year tax reductions totaling $1.6 trillion; $2.6 trillion for reducing the national debt and shoring up Social Security; and $153 billion for expanding Medicare.

How things have changed. The most recent estimates from the nonpartisan Congressional Budget Office (CBO) are for 10-year deficits totaling $1.4 trillion. Private groups say the shortfalls could exceed $5 trillion if fresh tax cuts and spending increases are enacted, as many analysts expect.

"It really is night and day — or day and night, really. It's an amazing transformation" of the budget landscape, said Robert Reischauer, president of the Urban Institute and former CBO director.

The administration says tax cuts it has pushed through Congress will spur the economy and help to make deficits smaller, along with proposed spending restraints. Even so, the budget's deterioration is certain to become a battleground in this year's presidential election.

"He inherited one of the greatest gifts any president in American history could inherit: surpluses of unprecedented amounts," said Thomas Kahn, Democratic chief of staff of the House Budget Committee. "And within a couple of years, thanks most significantly to his large tax cuts, we're now facing the biggest deficits in American history."

White House budget office spokesman Chad Kolton said: "The president inherited a very weak economy and the beginning stages of a collapse of the stock market. What he has done is come in with a bold plan to deal with that situation."

Bush's 2000 bid for the White House came at a time of unprecedented federal black ink. The government amassed a $124 billion surplus in 1999 and would run a record $236 billion surplus in 2000.

The big budget debate that year was over what to do with the extra cash. Both parties favored using much of it to reduce the national debt, but their other priorities differed.

Bush's plan featured a large tax cut, while Democratic Vice President Al Gore proposed higher spending and deeper reductions in the national debt.

Today, the surpluses are gone and the fight over how to use them is over. Last year saw a $374 billion shortfall, the largest ever in dollar terms, and analysts expect a deficit approaching $500 billion this year and more red ink to follow.

Bush wrote his first budget at a time when the economy still seemed to be booming, though economists since have concluded that it already had begun to stall. Today, the economy is recovering from a recession, a stock-market collapse and a parade of job losses.

In addition, today's budget is strained by an expensive battle against terrorism at home and abroad and costly deployments of U.S. troops in Iraq, Afghanistan and elsewhere. Both were unimaginable in 2000.

Federal coffers also have been drained by some of Bush's legislative successes. He has won more than $1.7 trillion worth of tax cuts and a Medicare expansion that includes prescription-drug coverage projected to cost $400 billion over the next decade.

The gloomy numbers, however, don't mean that Bush's new budget will be draconian. No one expects the White House or Congress to launch a major assault on deficits, which would require painful spending cuts or tax increases.

"It's an election year, so they'll give lip service to fiscal restraint, but you need to get re-elected," said Greg Valliere, managing director of the Charles Schwab Washington Research Group.

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