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Bush's new budget designee must grapple with huge deficit

WASHINGTON—Awaiting Rob Portman when he becomes director of the White House Office of Management and Budget is this chilling fact: By one measure, the government's budget deficit is actually twice as big as last year's official total of $319 billion.

President Bush on Tuesday picked Portman, a family friend and the current U.S. trade representative, to head the OMB. The former Ohio congressman, 50, is widely praised for his smarts and pluck. He'll need all that and more for his new job. If confirmed by the Senate, Portman must grapple with chronic budget deficits and severe government accounting problems to head off a looming fiscal crisis.

"Director Portman will be inheriting the most dire long-term fiscal outlook we've ever had," said Brian Riedl, the chief budget analyst for the Heritage Foundation, a conservative think tank. "The first baby boomers retire in 18 months, and the Social Security, Medicare and Medicaid costs are set to explode. On top of that, he'll be dealing with a Congress that's absolutely addicted to runaway spending and pork!"

Conservatives like Riedl complain that federal spending has grown 45 percent since 2001 and that the budget deficit for fiscal 2005 was a whopping $319 billion.

But it's actually more. When Treasury Secretary John Snow signed off in mid-December on the 2005 Financial Report of the United States Government—the official federal balance sheet—he acknowledged that a parallel accounting method showed the budget deficit was actually about $760 billion.

That's a difference of $441 billion.

The $319 billion deficit is based on cash-basis accounting, which tracks money flowing in and out of federal coffers as payments are made or received. But since 1997, the government also has estimated the present-day cost of promised future spending using accrual-basis accounting, which is the norm in corporate America.

Think of it as the government making a purchase on a credit card. The goods and services are paid for in the future, but they're counted as liabilities immediately, such as pension commitments to veterans.

"The (cash-basis) budget deficit doesn't pick up those long-term obligations because they have no current effect," said Donald Hammond, the assistant treasury secretary for government financial operations.

The $760 billion accrual-basis deficit for fiscal 2005 was up sharply from the $615.6 billion deficit of a year earlier. In fact, the accrual-basis deficit has grown each year of the Bush presidency.

If the bigger-than-advertised deficit isn't troubling enough, there's this attention-grabbing fact buried in the government's 158-page financial statement: The U.S. government's unfunded liabilities—financial promises to be paid by future generations—now exceed $46 trillion.

Yes, $46 trillion—enough to give $155,932.18 to each of 295 million Americans.

The bulk of that staggering number, $36 trillion, reflects a present-day value on promises that the government has made for health and retirement benefits to 76 million baby boomers born between 1946 and 1964. The first boomers reach the early retirement age of 62 in 2008.

Douglas Holtz-Eakin, a former economic adviser to Bush and until recently the director of the nonpartisan Congressional Budget Office, believes the focus on unfunded liabilities is overstated.

"Unfunded in the private sector means you do not have funds in your hands to meet (commitments). The government has the power to tax, so what constitutes funded or unfunded? You've got me," he said.

But Bush rules out raising taxes. He favors tax cuts, arguing that they'll promote growth and thus bring in more revenue. Economists are divided over how much revenue tax cuts generate, but most agree that economic growth alone won't generate enough to meet the government's promises to future generations.

Ultimately, Congress decides federal spending, tax and debt questions. Many experts believe that if Congress is going to really tackle the deficit, it needs a sign from Portman and Joshua Bolten, the new White House chief of staff who previously headed OMB, that the Bush administration is serious about it, too.

"I think they're facing the largest challenge I've seen in recent history, in terms of an administration having to decide whether they continue to borrow and spend, or whether they face up to very difficult choices that have to be made to discipline the budget," said Leon Panetta, who served as President Clinton's budget director and later was his White House chief of staff. "I think we'll find out in the next few months what that decision is going to be."

In announcing Portman's appointment, Bush promised that Portman would be "a powerful voice for pro-growth policies and spending restraint." Portman said he ran for Congress in 1993 in order to cut the federal deficit.

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ROB PORTMAN

_Born: Dec. 19, 1955, in Cincinnati

_Religion: Methodist

_Education: Bachelor of Arts, Anthropology, Dartmouth College, 1979; law degree, University of Michigan, 1984.

_Career: Appointed United States trade representative in April 2005; member, U.S. House of Representatives, Ohio's 2nd District, 1993-2005; associate specializing in international trade law, Patton Boggs, 1984-86; partner in the law firm of Graydon, Head and Ritchey, 1986-89 and 1991-93; associate counsel and director of the White House Office of Legislative Affairs, for President George H.W. Bush, 1989-91.

_Personal: Married. Wife Jane. Three children: Jed, Will and Sally.

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(c) 2006, Knight Ridder/Tribune Information Services.

PHOTOS (from KRT Photo Service, 202-383-6099): BUSH-OMB

GRAPHIC (from KRT Graphics, 202-383-6064): DEFICIT

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