Deficit Picture Brightens

Surging revenues and a steady economy have led the White House to project that this year's federal budget deficit will drop to $333 billion, nearly $100 billion below earlier estimates.

The White House welcomed the developments, calling the improving deficit picture a vindication of President Bush's stewardship of the economy and budget.

"The nation's budget picture has improved dramatically," said the new White House report. "Due in large part to tax relief, the economy is strengthening and the growing economy is producing the tax receipts necessary to cut the deficit far faster than was forecast just five months ago."

Just last February, the White House predicted a $427 billion deficit for the budget year ending Sept. 30 and red ink totaling $1.1 trillion over five years. The five-year deficit improvement would total $326 billion.

Last year's deficit of $412 billion was a record in dollar terms, though many previous deficits in the mid-1980s and early 1990s were larger when measured against the size of the economy.

The new estimates reflect significant improvement in revenues, which are so far coming in at levels 15 percent higher than last year.

The nonpartisan Congressional Budget Office also sees improvement in the deficit. It said last week that the deficit for this year could dip below $325 billion. CBO's official update will be released next month.

Despite the improvement, the deficit picture remains far worse than when Mr. Bush took office in 2001, when both White House and congressional forecasters projected cumulative surpluses of $5.6 trillion over the subsequent decade. Then, it forecast a surplus for this year of $269 billion.

Those faulty estimates assumed the revenue boom fueled by the surging stock market and Internet-fueled worker productivity gains would continue. But that bubble burst and a recession and the Sept. 11, 2001 terrorist assaults adversely affected the books. In early 2004, Mr. Bush announced his goal was to cut the deficit in half in five years. Then, the White House forecast the deficit to be $521 billion for the 2004 budget year, setting the goal of $260 billion by 2009. The White House and most economists preach that the more relevant measure of the deficit is to weigh it against the size of the economy.

Much of the growth in tax receipts seems to have come from relatively wealthy taxpayers since the biggest revenue increases have come from quarterly payments on capital gains and business income instead of from withholdings from wages.

Now, the White House forecasts a $162 billion deficit for 2009, which would represent just more than 1 percent of gross domestic product. The improvement for that year would come, it says, despite a $22 billion cost foreseen for deficit-financed private Social Security accounts. The cost of the private accounts would reach $54 billion in 2010.

CBO Director Douglas Holtz-Eakin, a former economist at the Bush White House, warns that it is too early to predict whether the improvements seen recently will be long lasting and that in any event, the looming retirement of the Baby Boom generation presents intractable long-term problems that can only be fixed by curbing the growth in government benefit programs like Medicare and Medicaid.

Democrats — even before the new numbers were released — urged caution and warned that the long-term deficit picture is not as rosy as the White House projects since it leaves out the long-term costs of occupying Iraq and Afghanistan and relies on cuts in programs annually appropriated by Congress that may prove unrealistic.

"We should not be lulled into complacency," said Rep. John M. Spratt Jr., D-S.C. "Over the last three years, the Bush administration has posted the three worst deficits in history and though the deficit for 2005 has improved, it remains among the largest on record."

On the economy, the White House foresees a 3.6 percent real growth rate for this year, slowing to 3.4 percent next year.