Deficit Study Disputes Role of EconomyMarch 16, 2004By EDMUND L. ANDREWS WASHINGTON, March 15 - When President Bush and his advisers talk about the widening federal budget deficit, they usually place part of the blame on economic shocks ranging from the recession of 2001 to the terrorist attacks that year. But a report released on Monday by the nonpartisan Congressional Budget Office estimated that economic weakness would account for only 6 percent of a budget shortfall that could reach a record $500 billion this year. Next year, the agency predicted, faster economic growth will actually increase tax revenues even as the deficit remains at a relatively high level of $374 billion. The new numbers confirm what many analysts have predicted for some time: that budget deficits in the decade ahead will stem less from the lingering effects of the downturn and much more from rising government spending and progressively deeper tax cuts. Administration officials do not dispute the basic thrust of the agency's estimate, but they still say that faster growth and spending restraints can reduce the deficit in five years. Though the economy is growing at more than 4 percent a year, administration officials continue to attribute much of the budget deficit to economic problems beyond their control. "Large and unwelcome as they are, the deficits are understandable," Treasury Secretary John W. Snow said in a speech last week. "They are understandable in the sense that the president inherited a recession and an economy greatly weakened by the excesses of the late 90's." President Bush and his advisers almost routinely cite a list of shocks to the economy, from a recession that began as Mr. Bush took office to the terrorist attacks and the loss of investor confidence after a series of corporate scandals. Joshua B. Bolten, director of the White House Office of Management and Budget, summed up the burdens when he presented Mr. Bush's latest budget proposal and predicted a deficit of $521 billion for this year. "Like America itself, the federal budget has faced extraordinary challenges in recent years," he said, citing "a stock market collapse that began in early 2000; a recession that was fully under way in early 2001; revelation of corporate scandals years in the making; and, of course, the Sept. 11 attacks and ensuing war on terror." The Congressional report, though, concludes that the "cyclical" problems of slower growth are a tiny part of the overall budget problem. The Congressional agency estimated that slower growth reduced tax revenues by $53 billion in 2002, accounting for a third of the budget deficit that year. In 2003, the agency estimated that subpar growth cut tax revenues by $68 billion. The overall budget deficit in 2002 swelled to $375 billion as a result of spending on the Iraq war and Mr. Bush's tax cuts. But this year, with the economy expanding, the Congressional agency predicted that lingering weakness would drain only $30 billion in tax revenues while the deficit hits $477 billion, less than the White House had forecast, but still a record. Critics of the Bush administration said the new report meant that budget problems were increasingly the result of legislative changes, from higher military spending to deeper tax cuts, rather than temporary economic distress. "What the Bush administration has tried over and over again to do is blame deficits on events outside their control," said Thomas S. Kahn, chief of staff for Democrats on the House Budget Committee. "The C.B.O. report is confirmation that the Bush administration has locked us into long-term structural deficits that will take some very tough decisions to wipe out." But J. T. Young, a spokesman for the White House budget office, said the administration was confident it could reduce the annual budget deficit by half over the next five years. Mr. Young cautioned that increases in tax revenues often lagged behind increased economic growth, and he noted that the budget was still being affected by higher costs for the military and domestic security. "The economic downturn was only one of the shocks," Mr. Young said. "Even though the recession is over, we still have to spend what is necessary in the war on terrorism." Brian M. Reidl, a senior budget analyst at the Heritage Foundation, a conservative research group, said control over government spending would be crucial. He said the agency report projected a 42 percent rise in spending from 1999 through 2005, but a tax revenue increase of only 19 percent. "Economic booms are not forever, but government programs are," Mr. Reidl said. "In the absence of real spending reform, the deficits are not going to go down." |
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