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Deficits, lower surpluses loom

Red ink could hit $21 billion this year, $14 billion in 2003

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WASHINGTON — Projected federal surpluses over the next decade have plunged 71 percent from last year's estimates and annual deficits are back for the next two years, says a new congressional forecast that heralds a budget squeeze sure to color this fall's elections.

The nonpartisan Congressional Budget Office estimated Wednesday a 10-year surplus of $1.6 trillion, a staggering $4 trillion less than the $5.6 trillion the office estimated only a year ago. Both projections by CBO, Congress' official budget analyst, are for 2002 through 2011, and assume no changes in current tax or spending programs.

Further dramatizing the worsening fiscal pressures faced by President Bush and Congress, CBO is now projecting one-year deficits of $21 billion this year and $14 billion in fiscal 2003, which starts Oct. 1. The government ran annual surpluses for four straight years beginning in 1998.

Just last year the budget office envisioned surpluses of $313 billion this year and $359 billion in 2003. The new projections, if accurate, would mark one of the steepest budgetary downslides ever.

The fiscal nosedive has been prompted mostly by the recession, the cost of the $1.35 trillion, 10-year tax cut Bush muscled through Congress last spring, and the price tag of the war on terrorism. This year the recession is the key reason for the worsening numbers, but the tax cut's costs are the biggest single factor over the entire decade.

CBO Director Dan Crippen planned to testify on the projections Wednesday before the House and Senate budget committees. In its report, CBO cautioned that because of the unpredictable economy and likely future tax and spending changes, "considerable uncertainty surrounds those projections."

The new surplus numbers were slightly worse than many had expected. Neither party hesitated to use them to make political points.

"Last month, the president said his administration brought sorely needed fiscal discipline to Washington," said Rep. John Spratt of South Carolina, top Democrat on the House Budget Committee. "CBO projects a deficit of $21 billion (this year). If this is fiscal discipline, it has a strange bottom line."

"The triple threat of the terrorist attacks, recession, and war will force us into deficits for a time," said the panel's chairman, Rep. Jim Nussle, R-Iowa. "We will get back on track to paying off the debt so long as the economy recovers as predicted and we can restrain spending."

Sen. Pete Domenici of New Mexico, the Senate budget committee's top Republican, said the two sides must "work together absent election-year partisanship" to pass a budget buttressing security and the economy.

Democrats have blamed the Bush tax cut and GOP reliance on unrealistically optimistic economic projections for the problem.

As a result, they have said, there will not be enough money left for priorities like defense, education and honoring a pledge by lawmakers of both parties to use the part of the surplus generated by Social Security and Medicare for debt reduction or to overhaul those programs.

Indeed, the CBO report projected that surpluses from those programs for the elderly and disabled would be used to help pay for other federal programs — and not for debt reduction — until 2010.

Republicans say the best way to help revive the economy is to resist some Democrats who want to block parts of last year's tax cut from taking effect in future years. They also say that though they want to protect budget surpluses, defending the country takes a higher priority.

Bush plans to send Congress a $2 trillion budget for 2003 on Feb. 4. Congressional and administration sources have said it will project deficits of about $100 billion this year and $80 billion in 2003 — assuming that Bush proposals for anti-recession tax cuts and extra spending for defense and homeland security are enacted.

CBO also projected a $2.26 trillion surplus for the decade running through 2012.

Though the projected $1.6 trillion surplus is a huge number, surpluses don't appear until there is $54 billion in black ink in 2004.

In addition, only $416 billion of the $1.6 trillion total — 26 percent — will occur through 2007, effectively leaving little excess money available for either party's initiatives through most of a two-term Bush presidency.

The $1.6 trillion projection is also artificially high because it assumes that last year's tax cut will expire as scheduled after 2010. Lawmakers are considered unlikely to let that happen.

CBO toned down its forecast for economic growth for 2002 to 0.8 percent, from a 3.4 percent forecast made last January. But it envisions healthy 4.1 percent growth next year, and an average 3.3 percent annual growth for 2004 through 2007.

"In CBO's opinion, the most likely path for the economy is a mild recession that may already have reached its nadir," the report said.