- The Washington Times - Tuesday, March 9, 2004

About the most remarkable feature of the recent review of President Bush’s 2005 budget by the Congressional Budget Office (CBO) was how closely the estimates paralleled one another. For the 2005-2009 period, the Bush administration forecast a cumulative deficit of $1.349 billion, while the CBO’s projection totaled $1.381 billion. Measured as a percentage of gross domestic product (GDP), or total economic output, the CBO confirmed that the budget deficit, compared to 2004, would be sliced in half by 2009. In fact, the budget deficit, estimated to be 4.2 percent in fiscal 2004, would fall to 2.1 percent by 2006 before declining further to 1.8 percent (2007 to 2009). For the 2010 to 2014 period, the CBO estimates the deficit would average less than 1.7 percent a year.

Even absent the forthcoming supplemental appropriation request for U.S. military operations in Iraq and Afghanistan for 2005, the president’s 2005 budget still reflects the fact that defense spending will, as it must in wartime, dominate discretionary spending, which represents the expenditures subject to the annual appropriations process. Compared to about $395 billion in 2004, annual budget authority for defense will increase an average of more than $20 billion per year, rising to $421 billion in 2005 and reaching $507 billion by 2009. (As noted, funding for military operations in Iraq and Afghanistan would require additional annual expenditures.) Homeland security budget authority among nondefense funding would increase from $27 billion in 2004 to $37 billion in 2009.

By necessity, and in recognition of major increases in recent years, spending for discretionary programs unrelated to defense and homeland security will be limited over the next five years. The CBO estimates that the 2005 increase in such outlays would be $11 billion, compared to a $23 billion increase during the 2004 fiscal year. Spending in 2006 would slightly decrease, falling to $425 billion, where the president’s budget would effectively freeze it through 2009.

Despite the fact that the president’s budget calls for making much of the 2001, 2002 and 2003 tax cuts permanent by repealing the various sunset dates, the CBO estimates that total federal budget revenues would increase significantly over the next five years. From 15.8 percent of GDP in 2004, for example, revenues are projected to jump to 16.8 percent in 2005 and average more than 17.8 percent a year from 2007 through 2009. Over the following five years, revenues would further increase.

The rising revenue base in the outyears cannot be attributed to overly optimistic economic scenarios. To be sure, in the near term the CBO projects that real (inflation-adjusted) GDP will increase by a solid — and Democratic-disheartening — 4.7 percent in fiscal 2004 (which ends Oct. 31), 4.3 percent in fiscal 2005 and 3.5 percent in fiscal 2006. Beyond 2006, however, annual economic growth will average a relatively paltry 2.6 percent for the 2007 to 2014 period. That means that easily conceivable — and conceivably sustainable — growth rates a percentage point above that average could significantly reduce the already-declining deficits much further.

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