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Bush hails a lower estimate of deficit

The president says the $296-billion projection is proof of an effective White House budget policy.

Compiled from Times wires
Published July 12, 2006

WASHINGTON - A new, lower estimate of this year's federal budget deficit is due to the Bush administration's tax cuts and shows the White House's economic policies are working, President Bush said Tuesday, as he said his plan to cut the deficit in half by 2009 is a year ahead of schedule.

In a speech at the White House, Bush hailed a report from the Office of Management and Budget showing that this year's budget deficit "will actually come in at about $296-billion," much better than the White House's original projection of $423-billion. Last year's deficit was $318-billion.

Impressive corporate profits and big income gains by the wealthy were largely responsible for driving up tax revenues and, in turn, pushing the deficit down. On the other side of the ledger, the Iraq war and Gulf Coast hurricane relief have weighed on the deficit - as have interest payments paid on the rising national debt.

The new estimates are validation, Bush said, of a budget policy centered on tax cuts passed in 2001 and 2003 and his clampdown on domestic agencies funded by Congress each year.

"These tax cuts left nearly $1.1-trillion in the hands of American workers and families and small business owners. And they used this money to help fuel an economic resurgence that's now in its 18th quarter," Bush said. "Economic growth fueled by tax relief has sent our tax revenues soaring."

But even as he cheered the revised figures, Bush warned Congress against overspending, particularly on programs like Medicaid and Medicare. "The spending for these programs is growing faster than inflation, faster than the economy and faster than our ability to pay for them," he said.

The improvement in the deficit for this fiscal year, which ends Sept. 30, has become apparent in recent months as the Treasury's reports of tax receipts have repeatedly exceeded initial forecasts. In May, the nonpartisan Congressional Budget Office said that the government's red ink "will be significantly less than $350-billion, perhaps as low as $300-billion."

Democrats contended that Bush is celebrating figures that still represent the fourth-largest deficit in U.S. history. "Let's not boast about a $300-billion deficit," said Senate Minority Leader Harry Reid, D-Nev. "Any statistic you look at recognizes the rich in America are getting richer, the poor are getting poorer and the middle class is getting squeezed."

However, most economists say the most relevant measure of the deficit is to weigh it against the size of the economy. In those terms, the 2006 deficit is 2.3 percent of gross domestic product, a better fiscal performance than 17 of the past 25 years. There were four years of surpluses during those 25 years.

The new projections show the deficit for next year easing back up to $339-billion, reflecting war costs and cautious revenue projections. The White House predicts it will drop to $188-billion in 2008, but that assumes a sharp slowdown in spending on the Iraq war and that Congress won't continue protecting millions of upper middle-income taxpayers from higher alternative minimum taxes.

Information from the New York Times, Washington Post and Associated Press was used in this report.

[Last modified July 12, 2006, 06:04:03]

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