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Back To Budget Deficits

Nonpartisan congressional forecasters are predicting sharply smaller federal surpluses over the next decade -- and forecasting deficits this year and next.

The federal surplus will dwindle to $2.26 trillion over the next decade and annual deficits are back, according to the new projections that are sure to color this fall's midterm congressional elections. The projected $2.26 trillion surplus is for 2003 through 2012 and assumes no changes in current tax or spending laws.

The estimates, made by the nonpartisan Congressional Budget Office, mean the government's expected black ink has plummeted to less than half the $5.6 trillion the office estimated a year ago. Last year's $5.6 trillion projection was for the decade ending 2011 — a period for which CBO is now projecting $1.6 trillion in red ink.

The new projections would mark one of the steepest budgetary downslides ever.

The CBO predicts the federal government will post a $21 billion deficit when this fiscal year ends on Sept. 30, down from its August estimate of a $176 billion surplus. The CBO expects a $14 billion deficit for fiscal 2003, down from the $172 billion surplus it forecast in its last set of long-term projections released in August.

The government ran annual surpluses for four straight years beginning in 1998.

White House budget chief Mitchell Daniels said Wednesday that the administration was forecasting deficits of $106 billion this fiscal year and $80 billion in fiscal 2003 - those numbers assume that Bush proposals for anti-recession tax cuts and extra spending for defense and homeland security are enacted.

The White House figures assume 0.7 percent growth in the 2002 calendar year followed by 3.8 percent growth in 2003, Daniels said. The White House is scheduled to release its budget blueprint Feb. 4.

Daniels said the federal budget should return to surpluses by fiscal year 2005, if not 2004. Over 10 years the White House is forecasting a nearly $2.9 trillion surplus, excluding certain tax cuts and other policy measures. When those policy changes are included, the surplus over 10 years comes to about $1 trillion, Daniels said.

He said Mr. Bush's budget would also "mark an interruption in the reduction of our national debt."

"We look forward to resuming it as early as fiscal '04. Debt reduction is a very important objective," Daniels said.

The fiscal nosedive has been prompted mostly by the recession, the cost of the $1.35 trillion, 10-year tax cut Mr. Bush muscled through Congress last spring, and the price tag of the war on terrorism. In the short run, the recession is the key reason for the worsening numbers, though the tax cut's costs are more dominant over the entire decade.

With both parties expecting bad news from CBO for weeks, they have already started using the numbers in a blame-game likely to last all year and dominate this campaign-year's budget fight.

Democrats say the Bush tax cut is mostly to blame, along with the Repblicans' reliance last year on unrealistically optimistic economic projections for coming years. Because of this, they argue, there is not enough money left for defense, countering terrorists, improving schools and other priorities.

In addition, they say portions of the surplus generated by Social Security and Medicare will now have to be spent to pay for other federal programs. Many of both parties' politicians had promised to set aside Social Security and Medicare surpluses for debt reduction or to overhaul the two programs for the elderly and disabled.

Republicans have blamed the worsening budget picture on the recession and the campaign against terrorism. They say annual surpluses will return shortly if the economy rebounds and if Democratic efforts to boost spending are rebuffed.

The best way to help the economy get stronger is to resist some Democrats who want to block parts of last year's tax cut from taking effect in future years, GOP lawmakers say. They also say that though they want to protect budget surpluses, defending the country takes a higher priority.

The government ran a record $237 billion surplus in 2000. The biggest deficit was $290 billion in 1992.

©MMII, CBS Worldwide Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press and Reuters Limited contributed to this report

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