The White House indicated Wednesday that the federal budget deficit would exceed $200 billion in this fiscal year and probably go over $300 billion next year, with deficits continuing for the next decade.
The ballooning deficits–the largest ever in dollar terms, though not as a percentage of the nation’s economy–could put President Bush’s tax plan in peril.
The budget that Bush submitted to Congress a year ago forecast a deficit of $80 billion for fiscal 2003, which ends Sept. 30, $14 billion for 2004 and surpluses thereafter. The fiscal 2002 deficit was $159 billion.
Eleven moderate senators–five Republicans and six Democrats–met in the Capitol on Wednesday afternoon to discuss their qualms about the president’s proposals and made plans to draft alternative tax legislation.
The consensus of the group, one of the senators said, was that the tax plan was too costly and that its centerpiece–the elimination of individual income taxes on most stock dividends–would not help the economy enough.
Sen. Charles Grassley (R-Iowa), the most influential senator on tax legislation, said the president’s tax package would probably have to be changed to get it through the Senate.
The deficit forecasts were made by Mitchell Daniels, the president’s budget director, while answering questions after a speech at the U.S. Chamber of Commerce in Washington. The estimates assume enactment of the tax plan but do not take account of the potential cost of a war with Iraq, which officials have said could be $50 billion or more.
The forecasts are in line with those of many, though not all, private economists.
Edward McKelvey, a senior economist at Goldman Sachs, said Wednesday that the deficit could reach $300 billion this year and $375 billion in 2004.
Still, this marks the first time the administration has acknowledged the magnitude of the expected deficits.
Daniels did not spell out his exact deficit projections, which will be published in early February as part of the administration’s budget proposal for the 2004 fiscal year. But he said the deficit would equal 2 percent or 3 percent of the nation’s gross domestic product in the next year or two. With an economy of roughly $10 trillion, that would translate to deficits of $200 billion to $300 billion.
Daniels said the president’s tax plan would add several “scores of billions” to the deficit in 2003 and about $100 billion to the deficit in 2004.
Coming on top of last year’s budget deficit of $159 billion, that means Bush’s tax plan alone could increase the shortfall to $250 billion by 2004 and new spending for homeland security and other priorities could raise the total above $300 billion.
Daniels suggested Wednesday that the budget was not likely to be in surplus during the next 10 years. But he and other administration officials emphasized that the anticipated shortfalls of 2 percent to 3 percent of the nation’s gross domestic product were modest in relation to the size of the entire economy.
“We ought not to hyperventilate about this,” he told reporters. “By any historical measure, these are manageable deficits.”
The deficit reached 6 percent of the economy in the mid-1980s under Ronald Reagan’s administration and was more than 4.5 percent in the last two years of the elder George Bush’s administration.
When Bill Clinton became president in 1993, he raised taxes, the economy boomed and the deficit shrank steadily. From 1998 through 2001, the government ran a surplus.
