Deficit blamed on economy, Iraq war

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The Bush administration yesterday predicted a $455 billion budget deficit this year, pinning blame on an unexpectedly slow economy and funding the war in Iraq.

The Office of Management and Budget released its so-called "midsession review," which reflected a deficit $151 billion higher than the $304 billion predicted when President Bush's budget was submitted to Congress in February.

A full 75 percent of the difference was caused by a slower than hoped-for recovery from recession and spending on the war in Iraq, according to OMB's figures.

White House spokesman Scott McClellan, however, called the deficit "manageable" and said the Republicans' pro-growth tax policies would cut the deficit in half by 2006.

"We have a deficit that is of concern, but it is a manageable one. And we are working to address it," Mr. McClellan said. "We had a recession. We also had declining revenues because of that. And we had a war on terrorism. That's what led to the deficit that we are in today."

The deficit figure could rise even higher by the close of the fiscal year on Sept. 30 because the estimated $4 billion monthly cost of current Iraqi operations has not yet been factored. And if not for Congress spending the Social Security surplus, the deficit this year would be another $150 billion higher.

OMB Director Josh Bolten said it was important to put the deficit in proper "historical perspective." The deficit represents only 4.2 percent of the country's economy, a figure that Mr. Bolten said is "higher than anyone would like" but not historic.

"This is well below the post-World War II peak of 6 percent," Mr. Bolten said. "Indeed, [the deficit as a percentage of the overall economy] is lower than in six of the last 20 years."

Democrats said the increase in the deficit proves that the president's economic policies have been a failure.

"The president and the Republican leaders in Congress said that their tax cuts were the best way to fix the economy and turn back the tide of rising red ink," said House Minority Whip Steny H. Hoyer, Maryland Democrat. "They were wrong -- just ask the 3 million unemployed workers who can't find a job in the still-sputtering economy."

Sen. Joe Lieberman, Connecticut Democrat and presidential candidate, said the unexpected increase in the deficit projection proves that "the Bush administration is playing fast and loose with the facts again." Mr. Lieberman was making an apparent allusion to the public flap over the administration's admission that evidence it cited of Iraqi attempts to purchase uranium in Africa was wrong.

"They underestimate the size of the hole we're in," Mr. Lieberman said. "And even worse, they are hiding behind the war and homeland security to excuse their own fiscal irresponsibility."

Sen. Kent Conrad, North Dakota Democrat and ranking member of the Senate Budget Committee, conceded that the war in Iraq, fighting terrorism and the economic slowdown are to blame "in the short term." But he added that the president's tax cuts in the long term will reduce revenue to the federal Treasury and continue "leading us into an ocean of red ink."

Federal Reserve Chairman Alan Greenspan's appearance before the House Financial Services Committee yesterday became a political opportunity for both parties to discuss the economy.

Rep. Joseph Crowley, New York Democrat, asked Mr. Greenspan if "the policies of this administration have been the killer to the economy, and especially to American jobs?"

Yet Mr. Greenspan did not agree with Mr. Crowley, and repeated his prediction for an economic upturn.

"If, and as we strongly expect, that the growth rate will be picking up in the months ahead and rising above the relevant rate of productivity, then clearly, increased work forces will be required to meet the increased growth," Mr. Greenspan said.

Rep. Jim Nussle, Iowa Republican and chairman of the House Budget Committee, said he was not surprised by the increased deficit projection, and blamed much of it on spending increases that would have been higher if Democrats had their way in Congress.