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White House Foresees 5-Year Debt Increase Of $1.9 Trillion

By Jonathan Weisman
Washington Post Staff Writer
Wednesday, July 16, 2003; Page A01

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.

White House budget director Joshua B. Bolten labeled the new deficit figures "a legitimate subject of concern," but he called the red ink "manageable." He offered no new proposals to bring the budget back into balance.

"Restoring a balanced budget is an important priority for this administration," he said, "but a balanced budget is not a higher priority than winning the global war on terror, protecting the American homeland, or restoring economic growth and job creation."

Bolten, 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."

There has been a dramatic reversal of the government's fiscal fortunes since President Bush took office in 2001. That year, the government posted a $127 billion surplus, and the CBO projected surpluses between 2003 and 2008 totaling $2.9 trillion. That means projections have shot downward by $4.8 trillion.

Just what caused that erosion is the subject of fierce partisan debate. The White House pinned the blame on three years of sluggish economic growth and the aftermath of the Sept. 11, 2001, terrorist attacks. During Bush's first months in office, the White House projected a $334 billion surplus for 2003. Of the $789 billion swing to a $455 billion deficit, Bolten attributed 53 percent to the economic downturn, 24 percent to war, homeland security and other new programs, and 23 percent to the three successive tax cuts enacted since 2001.

Republicans said the tax cuts will boost economic growth and ultimately shrink the deficit. "The tax cuts proposed by the president and enacted by Congress are not the problem," Bolten said. "They are and will be part of the solution."

Democrats disagree. Between 2002 and 2011, the government will have racked up $3.6 trillion in deficits, House Budget Committee Democratic aides project. During the same time, Bush-era tax cuts and the interest they add to government debt will have cost $3.7 trillion.

Those numbers will likely animate the political debate over the president's fiscal policies throughout the election season. Democratic candidates sought yesterday to put the swelling deficit into the context of their attacks on Bush's credibility over the justifications for invading Iraq.

"Just as disturbing as the news today about the record deficits the Bush administration has run up is the White House's response to the situation. President Bush is repeating two dangerous habits: misleading the American people and ducking responsibility for his mistakes," said Sen. Joseph I. Lieberman (D-Conn.), a candidate for the 2004 presidential nomination. "Everyone knows what is really responsible for these deficits," he concluded, "the unfair, unaffordable, and ineffective Bush tax cuts."

Rep. John M. Spratt Jr. (S.C.), ranking Democrat on the Budget Committee, lamented, "There seems to be no shame, no shock and no solution."

For both the Democrats and Bush, addressing the deficit presents a quandary. Mindful of his father's deficit-reduction experiences of 1991 and 1992, when President George H.W. Bush broke his "no new taxes" pledge, the president will be loath to reverse course on his own tax cuts. But he has also proved reluctant to demand deep spending cuts and risk alienating moderate voters.

Because the tax cut enacted last month locked in tax reductions that otherwise would have been phased in long after next year's election, Democratic candidates would have to advocate raising taxes to have much impact on the deficit. That also is politically perilous.

"We're in a very tough bind now," said Robert L. Bixby, executive director of the Concord Coalition, a nonpartisan budget watchdog group. "A lot of the stuff that caused this problem has been sort of baked in the cake."

Sen. Kent Conrad (N.D.), ranking Democrat on the Budget Committee, suggested yesterday some form of "tax reform" that would help close the gap between the amount of taxes owed and the amount actually paid. That "tax gap" is approaching $300 billion a year, he said, hinting that tougher enforcement of the tax code could substantially reduce the deficit without a tax increase.

© 2003 The Washington Post Company