Federal deficits soaring higher, menacing the future

McClatchy NewspapersFebruary 4, 2008 

WASHINGTON — President Bush took office in 2001 with a budget surplus, but his final budget proposal envisions federal deficits of more than $400 billion a year for the next two years. As big as those numbers are, experts think that the administration is lowballing the deficits, and they put little stock in Bush's vow to balance the budget by 2012.

"I think the promise that it will be balanced by 2012 is ridiculous," said Chris Edwards, the director of tax policy for the Cato Institute, a libertarian policy research group.

Bush's estimates of a $410 billion deficit this fiscal year and $407 billion for fiscal 2009, budget experts said, rely on very low assumptions of war costs, unrealistic estimates on tax collection and spending cuts that won't sell politically, regardless of which party is in charge of Congress.

"No sensible analyst takes this (budget) estimate seriously," said Robert Greenstein, the executive director of the liberal Center on Budget and Policy Priorities.

Edwards pointed to $70 billion in emergency Iraq and Afghanistan war costs budgeted for the fiscal year that begins on Oct. 1, a figure he called "totally phony" because it could easily end up closer to $200 billion, as it has in recent years.

Although Bush offers a one-year patch to keep the creeping alternative minimum tax from ensnaring millions of taxpayers, his budget would allow the tax to hit 38 million Americans by 2012. That would be tantamount to a huge tax increase.

Late last year, Congress approved a one-year patch for the AMT, a tax that must be calculated in parallel to standard income taxes. This patch wasn't paid for, however, and so it added to the federal deficit, which will grow by roughly $150 billion once Congress passes an economic stimulus later this month.

To balance the budget later, Bush envisions sharp spending cuts in popular programs for the elderly and a spending freeze on everything the government isn't required to pay for.

Few expect Congress to make deep cuts in such programs as energy assistance to the poor, disease control and space exploration. And experts don't see Congress agreeing to Bush's suggestion to reduce Medicare spending by $556 billion over the next 10 years — just as politically active baby boomers — Americans born between 1946 and 1964 — begin retiring en masse after 2010.

Once war costs and revenue lost to AMT patches are factored in, annual federal deficits are likely to exceed $500 billion, forcing the U.S. government to issue more debt.

Gross federal debt accumulated through all U.S. history totaled $8.9 trillion at the end of fiscal 2007 last Sept. 30. That was up sharply from $5.6 trillion at the end of fiscal 2000. Even under the optimistic scenarios envisioned in the Bush budget, gross federal debt is still projected to rise to more than $12.2 trillion by 2013.

At the end of 2007, foreigners held 44 percent of total Treasury debt held by the public, compared with 31 percent in 2000. Bridging budget gaps thus now depends on the kindness of strangers.

"It's not necessarily a problem, but it is vulnerability if we're not doing enough savings at home to finance our lifestyles, which clearly we're not," said Robert L. Bixby, the executive director of the Concord Coalition, a bipartisan budget watchdog group.

The rising deficits come as the United States faces the challenge of paying for Medicare and Social Security promises to retiring boomers.

"I think it really magnifies the weakened fiscal position we are in. We're not dealing from a position of fiscal strength here heading into the boomers' retirement years," Bixby said.

ON THE WEB

Read the Analytical Perspectives section of the federal budget.

McClatchy Newspapers 2008

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