Deficit Could Top $400 Billion

Senate Budget Committee Chairman Judd Gregg (R-N.H.) discusses the budget bill being debated this week.
Senate Budget Committee Chairman Judd Gregg (R-N.H.) discusses the budget bill being debated this week. (By Melina Mara -- The Washington Post)

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By Jonathan Weisman
Washington Post Staff Writer
Friday, January 13, 2006

Driven by the cost of hurricane relief, the federal budget deficit is expected to balloon back above $400 billion for the fiscal year that ends in September, reversing the improvements of 2005, a White House official told reporters yesterday.

But some budget analysts cautioned that the estimate should be considered more of a political mark to inform the coming budget debate than an economic forecast.

This is the third straight year in which the White House has summoned reporters well ahead of the official budget release to project a higher-than-anticipated deficit. In the past two years, when final deficit figures have come in at record or near-record levels, White House officials have boasted that they had made progress, since the final numbers were below estimates.

"This administration has a history of overestimating the deficit early in the year, lowering expectations, then taking credit when it comes in below forecast," said Stanley E. Collender, a federal budget expert at Financial Dynamics Business Communications. "It's not just a history. It's almost an obsession."

Indeed, the dire new forecast came the same day that Treasury Department officials were touting a very different picture: The federal government posted the first budget surplus for December in three years, buoyed by a rush of corporate tax payments that more than offset record spending. On Jan. 6, the nonpartisan Congressional Budget Office reported that the deficit for the first three months of the fiscal year was about $119 billion, almost exactly where it stood for the first quarter of fiscal 2005.

After four years of budget surpluses, the government fell back into a deficit in fiscal 2002, after which the deficit climbed to $378 billion in 2003 and $412 billion in 2004. In 2005, the tide of red ink receded to $319 billion.

Still, Joel David Kaplan, the deputy director of the White House budget office, lamented the rising tide of red ink, ascribing it to necessary spending in the hurricane-ravaged Gulf Coast. "We have made substantial investments in the region and the new deficit projections will include costs of Katrina and Rita recovery," he said. "We believe that those increased outlays associated with Katrina recovery efforts are a temporary event."

Kaplan joined top Bush administration officials who in recent days have warned that the president's budget for fiscal 2007, due out next month, will call for significant belt-tightening.

A projected deficit back above $400 billion is in line with private-sector forecasts, which ascribe the reversal not only to hurricane spending, but to an emergency war-funding request due out soon that could approach $100 billion. Adding to the problem, Congress adjourned last month without passing a temporary fix to limit the reach of the alternative minimum tax, a parallel tax system enacted to hit the rich but increasingly affecting the middle class.

In the coming months, Congress will almost certainly pass an AMT cut. The Senate-passed version of AMT relief would cost the Treasury $30.5 billion in revenue, $12 billion of that in fiscal 2006.

Congressional Republicans seized on the White House estimate to urge lawmakers to take budget cutting more seriously.

"The expected increase in the deficit is to some degree understandable due to the extraordinary expenses incurred as a result of the Gulf Coast hurricanes. But it is still unacceptable," said Senate Budget Committee Chairman Judd Gregg (R-N.H.).


© 2006 The Washington Post Company

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