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Deficit to hit record level, administration reports
by David Westphal
McClatchy Newspapers


January 26, 2005

Washington - Despite a robust rebound in federal tax revenues, war costs in Iraq and Afghanistan are likely to push the federal deficit beyond last year's record level, the Bush administration reported Tuesday.

On a day in which President Bush asked Congress for an additional $80 billion to finance military efforts in Iraq and Afghanistan, the White House projected that the federal deficit, which hit $412 billion last year, will grow to $427 billion in 2005.

Despite the setback, administration officials said Bush was still on track to fulfill a campaign pledge to cut the deficit in half over five years. But the latest assessment, along with a companion analysis by the Congressional Budget Office, offers both short-term and long-term cautions about the government's ability to get a handle on deficit spending.

The CBO report said that, just in the last four months, its 10-year projection had deteriorated by $500 billion because of additional tax cuts and spending increases.

"There is no end to the red ink," said North Dakota Sen. Kent Conrad, top Democrat on the Senate Budget Committee. "The situation is not improving."

Bush already has signaled plans to take more drastic action against the deficit, with a likely freeze on domestic discretionary spending in his 2006 budget. But he appears likely to lose ground against his deficit-reduction goals this year because nearly double-digit revenue gains are being more than matched by the huge costs of maintaining more than 100,000 troops in Iraq and Afghanistan.

Bush on Tuesday asked Congress for another $75 billion for continued operations in the region, plus $5 billion to build a new embassy in Baghdad and finance other aid efforts in the region. The new request, if approved by Congress, would bring to roughly $300 billion the cost of fighting wars in Iraq and Afghanistan.

In a statement, the president said the huge supplemental request "again makes clear to terrorists that our resolve is firm and we will complete our mission." He said it also fulfills his promise to protect American troops and advance his democracy goals in Iraq.

Officially, the Congressional Budget Office projected Tuesday that the government would end its 2005 fiscal year with a $368 billion deficit. While that would mark a sizable decline from last year's record-breaking $412 billion deficit, analysts at the nonpartisan agency quickly added that the number was largely meaningless, since it didn't include the additional costs of Iraq and Afghanistan.

The analysts suggested another $30 billion would be spent for those purposes before Sept. 30, the end of the fiscal year, with even higher amounts possible in 2006.

Bush has promised to cut the deficit in half by 2009, and the new congressional report suggests that mark is within reach, with analysts projecting a $207 billion deficit by 2009. But that may also be a pie-in-the-sky calculation, since it doesn't presume ongoing costs in Iraq nor other initiatives such as the president's plan to create private Social Security accounts.

CBO Director Douglas Holtz-Eakin said a deficit of $350 billion in 2009 was more likely.

Democratic leaders in Congress leaped to denounce Bush's fiscal policies and warned that financial markets may extract a penalty.

House Democratic leader Nancy Pelosi of California said in a statement that the new projections "confirm that President Bush and congressional Republicans have completely abandoned fiscal responsibility. . . . Economists have warned that huge deficits are a drag on the economy that will eventually force interest rates up.

"If we do not act to restore accountability, then mortgages, car loans, credit card debt and student loans will all cost more," she said.

The Concord Coalition, a deficit-battling lobby, said the real concerns raised by the reports are long term. The data suggest that a decade down the road, tax revenues will stagnate at the same time spending soars as the baby boomers begin collecting retirement benefits, the group said.

"To make matters worse, these factors hit at the same time that the extension of tax cuts . . . will drain more than $1 trillion in revenues," said Robert Bixby, the Concord Coalition's executive director. "It is this fiscally toxic combination that poses the biggest challenge for the future."


Distributed by Scripps Howard News Service.

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