CEDAR RAPIDS, Iowa — U.S. Treasury Secretary John Snow conceded Wednesday that government "deficits matter" but said an improving economy already is beginning to reduce red ink in the federal budget.
Snow said the record deficit for the fiscal year that ended Sept. 30 turned out to be about $100 billion less than was forecast at the beginning of the year. And a growing economy is certain to shrink deficits even further, he said.
"Deficits do matter," said Snow. "They matter because it's critically important that financial markets have confidence in the fiscal prudence of any government."
The Treasury reported on Oct. 15 that the fiscal 2004 deficit was $413 billion. While that was less than the $521 billion shortfall predicted a year earlier by the White House, it still topped the previous record of $377 billion set in fiscal 2003.
President Bush has come under fire in this year's presidential campaign by Democrats who accuse him of running up record deficits.
Some of Bush's defenders dismiss the significance of the deficit, saying it's relatively small compared to the size of the economy. But Snow made a different argument, saying the consequences of continued deficit spending likely would be higher interest rates with a resulting drain on the economy.
"If financial markets lose confidence, then funds are made available, but only at higher interest rates," he said. "The United States has avoided that."
Snow toured a high-tech Cedar Rapids machining company and then held a round-table with about 30 business leaders, giving them an upbeat view of an economy he said is clearly on the mend.
He noted that the nation's jobless rate has dropped to 5.4 percent, defying conventional wisdom that that low a jobless rate would lead to inflation. "We will sustain non-inflationary higher growth rates," Snow said.
He did issue one warning signal — that record high energy prices could cause looming troubles. "There can't be any doubt that these high energy prices are taking some of the wind out of the economy's sail," he said. "Current energy prices are too high and they are creating head winds for this economy."
Snow said the only solution "is to make ourselves less dependent" on Middle Eastern oil.
Snow sounded many of the same themes used by President Bush on the campaign trail, arguing that Bush's tax cuts have nudged the economy out of a recession he inherited.
Snow said his trip was official and he would avoid partisan comments, though he suggested the Senate has been far too reluctant to enact Bush's economic plans.
"I won't be political here, but I might say that a couple of these senators would certainly help the cause," he said.
Snow's tour took him through Minnesota on Tuesday and he was headed to Pennsylvania. Along with Iowa, those states are considered battlegrounds in the presidential campaign, with the outcomes too close to call.
Snow said he would focus on the nation's tax code and making the tax cuts permanent should Bush win another term in office.