White House forecasts record deficit of $455B this year

The White House Tuesday predicted lasting deficits that will spike up into record territory this year, reaching $455 billion in fiscal 2003 and $475 billion during fiscal 2004.

Just months ago, in its February fiscal 2004 budget document, the administration forecast deficits at least $150 billion less-$304 billion in fiscal 2003 and $307 billion in fiscal 2004. The new forecasts are contained in the annual OMB midsession review, which was released Tuesday.

The review forecasts that deficits will decline steeply after fiscal 2004, but still be far from eliminated. The deficit in fiscal 2005 falls by $171 billion to $304 billion, and then reaches $238 billion in fiscal 2006 and $213 billion in fiscal 2007. But the shortfall increases a bit in fiscal 2008 to $226 billion. From fiscal 2004 to fiscal 2008, the country will add another $1.455 trillion in debt, the review stated. The figures do not include anticipated additional spending needs for U.S. actions in Iraq, which will be counted as part of fiscal 2004 spending. The forecasts also include an assumption that a prescription drug benefit is added to Medicare at a cost of $400 billion over 10 years, which Congress has not yet passed.

Democrats argue that the figures, known as "unified budget" forecasts, actually mask the true size of the deficit because they include "off-budget" Social Security fund surpluses which, though already obligated as future spending for retirees, are nevertheless subtracted from the current deficit. Without the off-budget surpluses, the "on-budget" deficit is $614 billion for fiscal 2003 and $621 billion for fiscal 2004. Democrats also frequently blame the White House for piling on debt with tax cuts. The review stated that without the three major tax cuts passed during the Bush administration, the fiscal 2003 deficit would still be in triple digits, projected at $278 billion.

Part of the change from the February forecast is due to declining expectation for economic growth. While the fiscal 2004 budget predicted 3.4 percent growth in real GDP during the 2003 calendar year, the review predicted the GDP will rise by 2.8 percent.

Growth in 2004 is predicted to be 3.7 percent, trailing down from 3.5 percent in 2005 to 3.1 percent in 2008. The unemployment rate is pegged at 5.8 percent in the fourth quarter of this year, averaging 5.9 percent for all of 2004.

The rate declines to 5.5 percent by the fourth quarter of 2004 and falls gradually to 5.1 percent by 2008. Inflation remains steady over the period in the range of about 2 percent. From the February estimate for fiscal 2003, $15 billion was added to the deficit because of lower revenues, $47 billion because of costs in Iraq, $13 billion because the tax decrease was larger than expected, and $26 billion because of other spending, including additional unemployment insurance.