For What It's Worth, CBO Sees Zero Deficit

By Lori Montgomery
Washington Post Staff Writer
Thursday, January 25, 2007

The federal budget deficit will fall to $172 billion this year and $98 billion next year, then disappear completely by 2012, according to a report released yesterday by the Congressional Budget Office. But virtually nobody -- not even top CBO officials -- believes it.

That is because the CBO, the nonpartisan office that supplies Congress with cost estimates, is required to make some whopping assumptions, including: that all of President Bush's tax cuts will expire on schedule in 2010; that the alternative minimum tax will be permitted to ensnare millions of additional taxpayers; and that the war in Iraq and other military operations will never cost much more than the $70 billion that has so far been approved for the fiscal year that ends in September.

Back in the real world, even Democrats want to extend at least some of the Bush tax cuts. Even the White House wants to halt the expansion of the alternative minimum tax. And, as for global war efforts, the president is calling for an additional 21,500 troops to be sent to Iraq and is expected to ask Congress to approve an additional $100 billion for this year alone.

Add it all together, and the deficit would be about $200 billion this year, according to the CBO -- down from the $248 billion deficit recorded in fiscal 2006 and a big drop from the $413 billion spending gap the government racked up in 2004, the largest ever in dollar terms.

But the deficit would climb back up to $275 billion in fiscal 2008, according to Democratic budget leaders, who are just starting work on the 2008 budget. And by 2012, the deficit would be back in the $300 billion range, Democrats said, with the national debt climbing higher and a projected explosion in Social Security, Medicare and Medicaid costs right around the corner.

"You have to acknowledge this is good news. It will make it easier for all of us to bring the budget into balance over a reasonable length of time," House Budget Committee Chairman John M. Spratt Jr. (D-S.C.) said of the positive changes in CBO's official estimates. "But this is no time to get euphoric."

Both Spratt and Senate Budget Committee Chairman Kent Conrad (D-N.D.) have vowed to bring the budget into balance by 2012, as has the president. Bush is scheduled to deliver his five-year budget plan to Congress on Feb. 5.

In a statement, Bush's budget director, Rob Portman, hailed the CBO projections as further evidence that the nation is "on a solid path toward the president's new goal to achieve a balanced budget by 2012."

But Portman told reporters that the White House, too, is projecting larger immediate deficits than the CBO foresees. He said the president's fiscal 2008 budget will include some expensive items left out by the CBO, including a permanent extension of the business tax credit for research and development and, perhaps, a plan to hold the number of households hit by the alternative minimum tax steady at about 4 million for another year.

"Our number will be a little higher than theirs because we make different assumptions. But we'll be consistent in our ability to reduce deficits and balance the budget by 2012," Portman said, adding that the president's plan predicts a surplus in 2012.

In a briefing at the CBO's offices, new director Peter R. Orszag acknowledged that the numbers "may not conform to what many people expect will actually happen in the future." But the CBO is required to make projections based on current law, not on conventional wisdom or even political reality, Orszag said.

For that reason, the CBO's 173-page budget outlook includes a chart titled "Budgetary Effects of Selected Policy Alternatives Not Included in CBO's Baseline" that makes it possible for people to assemble their own budget projections.

© 2007 The Washington Post Company