New, Higher, Administration Deficit Estimates
Jonathan Weisman of the Washington Post reports that the Administration has increased its estimates of the federal budget deficit, here: "White House Foresees 5-Year Debt Increase Of $1.9 Trillion".
"The federal government will pile up $1.9 trillion in new debt over the next five years and will still be running an annual deficit of $226 billion by 2008, long after White House economists assume current war costs will have subsided and the economy will have recovered, the Bush administration projected yesterday.
"The White House Office of Management and Budget officially pegged the 2003 budget deficit at a record $455 billion, up sharply from $158 billion in the fiscal year that ended Sept. 30, 2002. It is expected to rise to $475 billion in fiscal 2004, even without additional costs for the occupation of Iraq. The deficit is then expected to dip swiftly to $213 billion in 2007 before rising again in 2008, the last year of the White House forecast..."
What caused these deficits (a shift from a surplus of $127 billion in FY 2001 - Weisman)? Recession, increased expenditures, including security and military expenditures, and the two Bush Administration tax cut bills, says Robert Kogan of the Center on Budget and Policy Priorities (CBPP) a credible, liberal, think-tank.
Kogan starts with Congressional Budget Office (CBO) projections from January 2001 of a $360 billion surplus in FY2003. This estimate didn't take account of the recession, which began in March 2001. Had the CBO accounted for the recession, Kogan figures the FY 2003 deficit would have been projected to be -$30 billion. This implies that the recession was responsible for $390 billion of the shift from surplus to deficit in FY 2003. These estimates don't take account of the tax cut bills, which add $205 billion to the FY 2003 deficit, non-war spending increases, which add $80 billion, or war related expenditures, which add $90 billion. Total deficit - -$405 billion. These calculations are laid out in his July 8 report, "WAR, TAX CUTS, AND THE DEFICIT". Kogan's calculations have now been made obsolete with the administration estimate of an FY 2003 deficit of -$455 billion. Both Kogan and the administration calculated larger deficits for FY 2004.
The shift from a projected $360 surplus to a projected $405 deficit is a shift of $765 billion. Kogan's figures suggest about half is due to the recession. About 27% is due to the tax bills. About 12% is due to the war.
A deficit may be appropriate given the need for fiscal stimulus to get us out of recession. More worrisome is the fact that the deficits aren't going away. Weisman reports in the Post that
"Bolten, [Josh Bolten, the new head of the Office of Management and Budget -OMB - the agency providing the new deficit estimates - Ben] offering his first deficit projections since taking over as budget director last month, would not concede a point private budget experts have been making for months: Absent significant budget cuts or tax increases, the deficit is now built into the fabric of the government's finances and is here to stay.
"We are truly in a structural deficit as it's usually defined," said Rudolph G. Penner, a Republican and former director of the Congressional Budget Office, "and this is not going to right itself." "
I posted about 10 year CBPP deficit estimates a few days ago, here:
"Upcoming Federal Budget Deficits". These long term deficits will eat into our ability to invest, reduce our economy's ability to grow, stimulate our hunger for foreign investment, encourage a persistent trade deficit, reduce our options for dealing with upcoming Social Security and Medicare fiscal decision-making, and squeeze discretionary federal spending.