Bush Budget Projects A Surplus by 2012

By Lori Montgomery
Washington Post Staff Writer
Monday, February 5, 2007

The budget that President Bush will submit to Congress today shows the federal deficit falling in each of the next four years and would produce a $61 billion surplus in 2012, administration officials said. But to get there, Bush is counting on strong economic growth, diminishing costs in the Iraq war and tight domestic spending to offset the cost of his tax cuts.

Democrats yesterday criticized the five-year budget plan as overly optimistic, and predicted that extending the tax cuts past their 2010 expiration date would dig the nation deeper into debt rather than produce a budget surplus. Republicans countered that the tax cuts are critical to maintaining a healthy economy and that a balanced budget is not possible without them.

"Raising taxes . . . won't help balance the budget -- it will slow the economic growth that is creating the new jobs of tomorrow and increasing revenue to the federal government," House Minority Leader John A. Boehner (R-Ohio) wrote in an essay distributed yesterday by his office. "Keeping our economy strong and promoting fiscal responsibility will get the job done. Raising taxes won't."

Republicans hope to make the tax cuts a central feature of this year's budget debate, the first in which Bush will present his request to a Democratic Congress. Both the White House and Democratic leaders have vowed to eliminate the federal deficit by 2012, but Democrats have signaled their intention to do it in part by targeting tax breaks for corporations and taxpayers earning more than $500,000 a year.

"We think it's absolutely critical that they be extended in 2010, when they otherwise would expire. Why? Because they have contributed to this growing economy," White House budget director Rob Portman said yesterday on CNN's "Late Edition."

"We think it would be a mistake and a risk to our strong economy to have these tax cuts not continue," Portman added.

Recent estimates by the nonpartisan Congressional Budget Office suggest that it would be difficult to balance the budget if the tax cuts -- a collection of rate reductions and tax credits that have reduced Treasury collections by an estimated $1 trillion since 2001 -- continue.

According to the CBO, a vibrant economy has indeed produced a gusher of revenue over the past two years that could help turn the nation's $248 billion deficit into a $170 billion surplus by 2012. But if the tax cuts and other expiring tax provisions are extended, the CBO predicts, the deficit would hit $146 billion in 2012 and grow thereafter as health costs skyrocket and the baby-boom generation retires.

The White House takes a different view, assuming that continuing the tax cuts would produce slightly more robust economic growth than the CBO foresees.

"The big difference between CBO and us is the tax relief. They don't make it permanent, and we do. And we stand behind the economic benefits of the tax relief," said an administration official, speaking on the condition of anonymity because the budget had not yet been released.

There are other differences between the two projections. Bush's budget projects slower spending growth from 2008 to 2012, with outlays rising 11.8 percent, compared with 14.7 percent in the CBO's estimates.

Administration officials also exclude some potentially expensive items. Their request, for the first time, attempts to show the true cost of the wars in Iraq and Afghanistan in the coming fiscal year, $145 billion, but includes just $50 billion for fiscal 2009 and nothing thereafter.

The president's budget would also reduce spending for Medicare and Medicaid, the federal government's health programs for the elderly and the poor, by about $100 billion over five years. And it would provide insufficient extra cash to maintain coverage for poor children currently enrolled in the Children's Health Insurance Program.

Democrats blasted those proposals, noting that the Republican-controlled Congress last year did not approve much smaller reductions in federal health-care spending.

"Rather than trying to solve our health care crisis by lowering costs and covering more people, the President's plan will make the crisis worse by raising costs and failing to cover those who need it most -- our nation's children," Sen. Edward M. Kennedy (D-Mass.) said yesterday in a statement.

Democrats also pointed to an assumption common to projections by the CBO and White House: Both assume that the alternative minimum tax will be permitted to expand to millions of additional families, generating billions in additional tax dollars by 2012. Democrats and some Republicans have vowed to halt the growth of the tax and, ultimately, repeal it.

Portman said the White House proposal is a "tight budget, but a more realistic budget" that contains much to appeal to Democrats, such as a small increase in non-security domestic spending, the first in two years.

But Democrats were skeptical.

"With their track record, everything they present is going to be viewed skeptically. Because they've been deceptive year after year after year," said Senate Budget Committee Chairman Kent Conrad (D-N.D.). "Every projection shows the cost of making all the tax cuts permanent explodes at the very time the baby boomers start to retire," driving "the deficit and the growth of the debt to the moon."

© 2007 The Washington Post Company