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Bush plan to balance budget depends on optimistic projections

WASHINGTON—President Bush says his new proposals would eliminate budget deficits by 2012, but that depends in part on his assumption that the economy will sustain healthy growth longer than it ever has before.

Deficits have fallen in recent years, to 1.9 percent of the nation's gross domestic product in fiscal 2006, which ended last Sept. 30. That's low by historical standards. It's occurred largely because of the largest two-year surge in federal revenues in a quarter-century, reflecting the strong economy.

Bush envisions these trends continuing through 2012. His proposed budget projects real economic growth of 3 percent each year from fiscal 2008 through fiscal 2012. It also assumes that unemployment will remain at a low 4.8 percent and interest rates will fall.

The longest business cycle to date was March 1991 to March 2001. If Bush's estimates are right, the U.S. economy would surpass that record in December of 2011. Economists say there's no way to forecast economic performance so far into the future.

"When you get into 2009, there's no point in doing recession and expansion" forecasts, said Guy Faucher, an economist with Moody's

In addition, Bush's budget makes some politically dubious assumptions, including:

_He doesn't estimate any war costs beyond $50 billion for fiscal 2009, though many experts think war costs are likely to extend beyond then.

_He assumes much more disciplined spending than Congress has managed in recent years, and Democrats are now in power with pent-up spending priorities.

_He assumes that Congress will permit the alternative minimum tax to make tens of millions more middle-class taxpayers pay higher taxes, which history shows that neither party wants to do. In fact, they've blocked that tax's expanding bite annually for years. That means that far lower revenues from that tax will go to the Treasury than Bush's budget forecasts.


(c) 2007, McClatchy-Tribune Information Services.

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