White House slashes 2005 budget gap forecast

By Caren Bohan

WASHINGTON (Reuters) – The White House on Wednesday slashed
its forecast for the fiscal 2005 budget deficit by nearly $100
billion after the government raked in unexpectedly large tax
revenues in recent months.

The Bush administration projected a deficit of $333 billion
for the fiscal year ending Sept. 30, according to the Office of
Management and Budget’s “midsession” update.

President Bush, at a meeting with his Cabinet, hailed the
numbers and said he could cut the deficit gap in half sooner
than his earlier promise of 2009.

“I told the Congress and told the country we’d cut the
deficit in half by 2009,” Bush told reporters during the
meeting.

“We’re ahead of projections now. These numbers indicate
that we’re going to cut the deficit in half faster than the
year 2009 so long as Congress holds the line on spending,” he
added.

The revised budget gap was sharply narrower than the $427
billion estimate the Bush administration gave in February with
the release of its proposed budget. It was also down from
2004′s deficit of $412 billion, which was a record high.

Private analysts had projected a lower deficit, but some
cautioned that temporary factors, such as capital gains
receipts from the jump in stock prices late last year, were at
play.

They also warned that spending on entitlement programs such
as the Medicare health program for seniors is expected to climb
steeply in coming years.

Democrats noted that Bush, who inherited record budget
surpluses when he took office in 2001, presided over a shift to
record deficits that have shown improvement only recently.

Rep. John Spratt of South Carolina, the senior Democrat on
the House of Representatives Budget Committee, said the news
“needs to be put in perspective.”

“Over the last three years the Bush administration has
posted the worst three deficits in American history and even
with this slight improvement, 2005 remains the third biggest on
record,” Spratt said.

Bush’s promise to cut the deficit in half by 2009 uses as
its starting point the $521 billion projection it gave last
year for 2004. Critics accuse the White House of having used an
inflated projection and say it is a misleading benchmark since
the deficit never hit that level.

According to the midsession projections, even using the
$412 billion deficit of 2004 as a starting point the goal of
halving the deficit would be met by 2008. Still, analysts warn
the biggest budget challenges are in years beyond 2008.

The White House said the new projections would mean the
deficit as a percentage of gross domestic product would drop to
2.7 percent from last year’s 3.6 percent.

“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,” the OMB said in a summary of
the budget update.

Democrats have blamed Bush for racking up big deficits with
tax cuts they deem unaffordable. Bush has boosted spending
sharply on the military and homeland security in the aftermath
of the Sept. 11, 2001, attacks and amid the Iraq war.

The White House also lowered its forecasts for budget gaps
in coming years, saying that over the 2006-2010 period,
government red ink would total $1.07 trillion. In February, it
had put that five-year figure at $1.39 trillion.

In future years, mandatory programs like the Medicare
health program for senior citizens and the Social Security
retirement program are expected to pose the biggest budgetary
challenge as the population ages.

(Additional reporting by Tim Ahmann)