NEW YORK - The U.S. budget deficit is hitting "record" levels and even the International Monetary Fund is making a fuss.
The Congressional Budget Office yesterday forecast a federal government budget deficit of $480 billion in 2004, which has been billed as a record--which it is in absolute terms. But as a percentage of gross domestic product, deficits were larger in the early 1980s and early 1990s. While the CBO estimates for this year and next year don't differ markedly, there is a sharp dispute about where the deficit is likely to be in the years after that.
Last month the White House said the deficits should continue for the next two years and start to fall after that. The CBO's "baseline" projections (that is, assuming no change in tax or spending policy) indicate that the deficit will reach $480 billion next year and will likely top $500 billion once the cost of the occupation of Iraq and other new spending requests are factored in. The CBO also forecast a cumulative budget deficit of just under $1.4 trillion over the next decade. If the deficit hits that level, it would approach the 1980s deficits in real terms. (The previous record in absolute terms was 1992 when the budget shortfall was $290 billion.)
While Democrats and Republicans traded charges over the deficit in predictable ways (Democrats calling President George Bush's policies irresponsible; Republicans saying it's all quite manageable), more unusual is the IMF sticking its nose in. The international bank is set to reproach the U.S. for being too optimistic in its assumptions on government spending and revenue, and lacking a coherent budget plan, according to Reuters. The IMF draft report also says that the U.S. lacks "a medium-term concept to consolidate budgets and reform the social insurance system."
But within the U.S., there is a sharp dispute as to where the deficit will be in five years, with the White House saying it will decline to just $62 billion. The CBO says it will be close to $200 billion, or just over $300 billion if recently enacted temporary tax cuts are made permanent. Some private-sector analyses have basically concurred with the CBO analysis. Goldman Sachs (nyse: GS - news - people ) projects $4.5 trillion in deficits. Economists at Citigroup (nyse: C - news - people ), Merrill Lynch (nyse: MER - news - people ) and Credit Suisse First Boston all told Bloomberg News they don't see a government surplus returning any time in the next decade.
Everyone basically aggress that the deficits will fall towards the end of the decade due to faster economic growth, which underlie the budget projections.
The New York Times cites Trent Duffy, spokesman for the White House budget office, who countered that long-term budget projections were inherently unreliable and said today's report merely supported Mr. Bush's promise to reduce government spending.
"The only thing we know about ten-year projections is that they are terribly, terribly wrong," Duffy told the Times. "In 1993, ten years ago today, CBO did not predict that in the late 1990s we would have a surplus."
Indeed, predicting the budget over long periods may be even more difficult than Duffy says. As recently as December 2000, the White House was projecting a ten-year surplus of $5 trillion. Of course, the CBO didn't agree at that time either. It forecast a ten-year surplus of as much as $6 trillion. These were all "baseline" projections. But as it happened, tax policy, spending policy and the economy all changed.
http://www.forbes.com/2003/08/27/cx_da_0827topnews.html
The Congressional Budget Office yesterday forecast a federal government budget deficit of $480 billion in 2004, which has been billed as a record--which it is in absolute terms. But as a percentage of gross domestic product, deficits were larger in the early 1980s and early 1990s. While the CBO estimates for this year and next year don't differ markedly, there is a sharp dispute about where the deficit is likely to be in the years after that.
Last month the White House said the deficits should continue for the next two years and start to fall after that. The CBO's "baseline" projections (that is, assuming no change in tax or spending policy) indicate that the deficit will reach $480 billion next year and will likely top $500 billion once the cost of the occupation of Iraq and other new spending requests are factored in. The CBO also forecast a cumulative budget deficit of just under $1.4 trillion over the next decade. If the deficit hits that level, it would approach the 1980s deficits in real terms. (The previous record in absolute terms was 1992 when the budget shortfall was $290 billion.)
While Democrats and Republicans traded charges over the deficit in predictable ways (Democrats calling President George Bush's policies irresponsible; Republicans saying it's all quite manageable), more unusual is the IMF sticking its nose in. The international bank is set to reproach the U.S. for being too optimistic in its assumptions on government spending and revenue, and lacking a coherent budget plan, according to Reuters. The IMF draft report also says that the U.S. lacks "a medium-term concept to consolidate budgets and reform the social insurance system."
But within the U.S., there is a sharp dispute as to where the deficit will be in five years, with the White House saying it will decline to just $62 billion. The CBO says it will be close to $200 billion, or just over $300 billion if recently enacted temporary tax cuts are made permanent. Some private-sector analyses have basically concurred with the CBO analysis. Goldman Sachs (nyse: GS - news - people ) projects $4.5 trillion in deficits. Economists at Citigroup (nyse: C - news - people ), Merrill Lynch (nyse: MER - news - people ) and Credit Suisse First Boston all told Bloomberg News they don't see a government surplus returning any time in the next decade.
Everyone basically aggress that the deficits will fall towards the end of the decade due to faster economic growth, which underlie the budget projections.
The New York Times cites Trent Duffy, spokesman for the White House budget office, who countered that long-term budget projections were inherently unreliable and said today's report merely supported Mr. Bush's promise to reduce government spending.
"The only thing we know about ten-year projections is that they are terribly, terribly wrong," Duffy told the Times. "In 1993, ten years ago today, CBO did not predict that in the late 1990s we would have a surplus."
Indeed, predicting the budget over long periods may be even more difficult than Duffy says. As recently as December 2000, the White House was projecting a ten-year surplus of $5 trillion. Of course, the CBO didn't agree at that time either. It forecast a ten-year surplus of as much as $6 trillion. These were all "baseline" projections. But as it happened, tax policy, spending policy and the economy all changed.
http://www.forbes.com/2003/08/27/cx_da_0827topnews.html
