Bush Grapples With Lowering Deficit

WASHINGTON – One guiding star in the $2.5 trillion budget that President Bush (search) ships Congress next month will be his goal of cutting the federal deficit (search) in half by 2009. Bush first proclaimed that objective in his spending plan last year. That was months before the 2004 federal budget shortfall came in at a record - but less than expected - $412 billion.

The White House touts the goal as part of its commitment to get the budget under control, while critics mock it as a feeble feint at fiscal prudence. Following is a look at how the effort is going.

Q: If last year's deficit set a record, it had to be worse than the previous year's shortfall. Doesn't that mean Bush lost ground trying to reach his goal?

A: Last year's deficit was $35 billion worse than in 2003. Yet administration officials say they made big progress toward reaching their target.

That's because White House budget chief Joshua Bolten (search) defined their starting point as the $521 billion deficit for 2004 that the administration projected a year ago.

Since the actual 2004 shortfall ended up at $412 billion, the White House claims it made progress to the tune of $109 billion. It also let them set a bigger deficit target for 2009: $260.5 billion, which is half of $521 billion.

Had they used last year's actual $412 billion deficit as their marker, their goal would be a tougher $206 billion shortfall. Had they started with the actual 2003 deficit of $377 billion, they would be shooting at an even harder-to-achieve $188.5 billion for 2009.

Q: Why cut the deficit in half in the first place?

A: Mainly to prevent it from hurting the economy.

To judge the deficit's potential for causing such harm, many economists say it should be compared with the U.S. economy, which surpassed $11 trillion last year. Measured that way, the worst deficit since World War II was under President Reagan in 1983, when the shortfall ate up 6 percent of the economy.

Administration officials say they want to trim the deficit back to 2.2 percent of the economy - half as big as their projected $521 billion shortfall for last year would have been, and the average for the past four decades. They say historic data shows that once red ink shrinks to that size, it does not drive up interest rates or cause other economic harm.

Q: Why not aim at eliminating the shortfall completely?

A: Balancing the budget is exactly what deficit hawks say should be the goal. They point out that when deficits reached the $200 billion range in the 1980s and 1990s, policy makers, including the first President Bush, always aimed at eliminating them, not merely halving them.

Bush critics say this is an especially important period to erase deficits because the first of the 76 million baby boomers will begin drawing Social Security (search) benefits in 2008, heaping even more pressure on the budget.

In addition, the steadily growing net interest the government pays on its debts neared $160 billion last year, soaking up funds that could have been used for other programs. That is more than the government spent for anything but Social Security, health, defense and welfare.

Administration officials say they may do more than cut the deficit in half - if the economy gets stronger than expected and if spending falls below what the White House anticipates. But eliminating the deficit will take far more robust economic growth and deeper spending cuts than most analysts expect.

Q: Will Bush meet his goal?

A: Many people think he will - but disagree on how he will do it and how meaningful it will be.

Administration officials say their prescription of tax cuts, for generating economic growth, and spending controls should do the trick. Critics say Bush may reach his goal, but only by ignoring the costs of items like revamping Social Security and the Iraq war.

The last time the administration projected future deficits was in July. It estimated that if all of Bush's tax and spending proposals were enacted, the shortfall would drop to $261 billion in 2006 - virtually hitting its 2009 target.

Bush plans to submit his budget for 2006 on Feb. 7, but no one expects him to declare victory three years early. In part, that's because he will soon ask for at least an additional $70 billion for wars in Iraq (search) and Afghanistan (search), which will push him further from his goal.

His budget is also expected to exclude the costs of his still evolving plan to overhaul Social Security, as well as other expenses he supports, such as keeping the alternative minimum tax from affecting more middle-income families.