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Record '05 Deficit Forecast

War Costs to Raise Total to $427 Billion

By Jonathan Weisman
Washington Post Staff Writer
Wednesday, January 26, 2005; Page A01

Additional war spending this year will push the federal deficit to a record $427 billion for fiscal 2005, effectively thwarting President Bush's pledge to begin stanching the flow of government red ink, according to new administration budget forecasts unveiled yesterday.

Administration officials rolled out an $80 billion emergency spending request, mainly for Iraq and Afghanistan, conceding that the extra money would probably send the federal deficit above the record $412 billion recorded in fiscal 2004, which ended Sept. 30. Bush has pledged to cut the budget deficit in half by 2009, a promise the administration says it can keep. But at least for now, the government's fiscal health is worsening.

"We're doing a little bit worse over the long term," CBO Director Douglas Holtz-Eakin said. (File Photo)

Continued Deficits Tax breaks and war costs could make it extremely difficult for the Bush administration to meet its goal of halving the budget deficit in five years, new Congressional Budget Office figures show.

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"We must get serious about putting our financial house in order, beginning with short-term deficit reduction and then long-term control of entitlement spending," said Senate Budget Committee Chairman Judd Gregg (R-N.H.). "If we do nothing, our kids and grandkids will be overwhelmed by the cost of our inaction."

In separate briefings, administration officials detailed the rising cost of war while the nonpartisan Congressional Budget Office released its deficit forecast for the coming decade. Taken together, the briefings painted a sobering picture of the government's financial strength, even in the face of a growing economy and rising tax receipts. The figures suggest the Bush administration will continue to have difficulty reining in federal deficits as long as war is draining the government's coffers.

"There is no question that [the insurgents], with relatively small expenditures, are proving themselves to be able to force us into much larger ones," one senior administration official said.

Of the $80 billion request, at least $75 billion would fund the wars in Iraq and Afghanistan this year. An additional $5 billion would go toward building an embassy in Baghdad, continuing reconstruction in Afghanistan, offering assistance to the Palestinians and sending relief to the Darfur region of Sudan. That $80 billion would come on top of $25 billion already appropriated for the war this year, pushing the total cost of fighting to $105 billion, up from $88 billion in 2004 and $78.6 billion in 2003.

"Our troops will have whatever they need to protect themselves and complete their mission," Bush said in a statement.

The latest war request would push the total cost of military operations in Iraq and Afghanistan and other efforts since the Sept. 11, 2001, attacks to $277 billion, according to the CBO. That figure well exceeds the inflation-adjusted $200 billion cost of World War I and is approaching the $350 billion cost of the Korean War, according to Commerce Department figures.

In a separate briefing, CBO Director Douglas Holtz-Eakin said tax cuts and spending enacted by Congress last year will contribute $504 billion to the government's overall forecast debt between 2005 and 2014. Additional debt over that decade should total $1.36 trillion, well above the $861 billion figure the CBO projected in September.

"We're doing a little bit worse over the long term," Holtz-Eakin said, "and it's largely due to policy" changes.

A senior administration official told reporters that Bush's budget -- to be announced Feb. 7 -- will show the government on track to cut the deficit in half from the White House's initial deficit projection for 2004.

But the CBO projections cast significant doubt on that claim. In total, the CBO projected that the government will amass an additional $855 billion in debt between 2006 and 2015, but Holtz-Eakin cautioned that the figure almost certainly understates the problem. The total assumes no additional money will be spent in Iraq or Afghanistan over the next decade. Perhaps more important, the CBO, by law, must assume Bush's first-term tax cuts will expire after 2010, sending the government's balance sheet from a $189 billion deficit that year to a $71 billion surplus in 2012.

The CBO forecast also excludes the cost of Bush's promised restructuring of Social Security, which could add an additional $1 trillion to $2 trillion over the next decade.

Even with those favorable omissions, the CBO projected that Bush will miss his goal of cutting the deficit in half by 2009 from last year's level. The 2009 deficit, excluding war and Social Security costs, is expected to drop to $207 billion, just over half of last year's record $412 billion level, the forecast said.

"Having racked up three of the largest deficits in history, the Bush administration is years away from reducing the deficit by half, or by any appreciable amount," said Rep. John M. Spratt Jr. (S.C.), the ranking Democrat on the House Budget Committee.

By any measure, the CBO's projected deficit for fiscal 2005, which began Oct. 1, is disappointing, some Republicans acknowledged. In the first three months of the fiscal year, tax receipts actually surged, rising 11 percent higher than they were during the first quarter of fiscal 2004, Senate budget aides said. Corporate tax receipts jumped 50 percent, suggesting a robust economic recovery would improve the government's fiscal position.

But Holtz-Eakin said congressional forecasters had always anticipated the tax picture would improve with the economy. The problem, he said, is spending.

The administration officials refused to detail exactly how the $80 billion request would be divided up. Of the $75 billion for the military, the bulk would go to the Army to support deployed troops, help convert the Army's force structure to smaller "modular" combat brigades, and to begin repairing and replacing battered military equipment. Some of the money would help accelerate the training and equipping of Iraqi and Afghan security forces, one official said.

As much as $1 billion would go toward defeating roadside bombs, the official said. The money would be spent on improved intelligence and surveillance, the training of canine detection teams and the development of technology.

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