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Administration announces $159 billion deficit for fiscal 2002

W By Dana Milbank

wASHINGTON – The Bush administration late Thursday announced a budget deficit of $159 billion for the fiscal year just ended, confirming that the federal government officially returned to the red for the first time since 1997.

The announcement of the budget deficit for fiscal year 2002 wasn’t a surprise; the administration had earlier projected a slightly larger deficit for the year as the surplus was consumed by recession, war spending and tax cuts. Still, Democrats pounced on the official figures–a $286 billion swing from the previous year–as evidence that the Bush administration had presided over what the opposition called the largest one-year fiscal reversal in the nation’s history.

President Bush’s budget director, Mitch Daniels, said the deficit figure made it “absolutely essential” that the government keep tight controls over spending. “It’s now clear that the unexpected surge in revenues toward the end of the last decade was temporary, and that revenues are returning to historic levels for reasons unrelated to legislated changes,” he said in a statement. “At the same time, unexpected new defense and homeland security spending is needed to protect America from new threats.”

House Minority Leader Dick Gephardt, D-Mo., countered that the numbers represented “an incredible turnaround, probably the most stunning change in figures we’ve ever seen.” In an interview, Gephardt indicated Democrats would use the new figures as evidence of broader economic troubles as they campaign for midterm elections in 12 days. “It’s just one more part of the picture,” he said. “We are heavily into deficits and spending Social Security money in addition. The economy is stuck in neutral if not falling, and we could be headed for a double dip recession.”

The official release of the 2002 budget figures is scheduled for Friday, but the administration released the key numbers Thursday night in what Democrats interpreted as an effort to bury the bad news on a day dominated by developments in the sniper case. The Office of Management and Budget reported receipts of $1.853 trillion for the year and spending of $2.012 trillion, yielding the $159 billion deficit in the year ended Sept. 30.

The surplus, which began in 1998, peaked at $237 billion in 2000 and slipped to $127 billion in the 2001 fiscal year. The 2002 deficit was the largest since the 1995 fiscal year produced a $164 billion shortfall.

Earlier in the week, Daniels estimated the fiscal 2002 deficit would be about $165 billion. The Congressional Budget Office had expected $157 billion.

The federal deficit, now official, could have implications for arguments over government spending when Congress returns next month. Bush, in campaigning for Republican candidates, has been calling on Congress to make last year’s tax cuts permanent; they’re set to expire after nine years under current law.

“In order to make sure that our economy grows, in order to make sure the job base is strong, you need to have a congressman who will join me in making sure that tax relief plan we passed is permanent and doesn’t go away,” the president said at a political rally late Thursday in Auburn, Ala. Bush didn’t mention the budget figures, which were released just before he spoke.

Thomas Kahn, the minority staff director of the House Budget Committee, said making the tax cuts permanent would cause a deficit over the 10 years through 2011 of $408 billion; if the cuts expire, there would be a 10-year surplus of $336 billion. Forecasts by the Congressional Budget Office at the beginning of 2001 had put the 10-year surplus at $5.6 trillion, before economic troubles, military spending and the tax cut altered the picture. The tax cuts passed last year had a relatively minor role in the budget deficit for fiscal 2002, but its impact is scheduled to increase significantly over the 10-year period.

“According to the White House’s own budget numbers, the biggest reason for the reversal is last year’s tax cut,” Kahn said of the 10-year outlook. “Just as the Baby Boom generation retires, the deficit will start to boom.”

The administration, however, remained optimistic about the economic outlook. Treasury Secretary Paul O’Neill said it a statement that “going forward, I am confident that we are on the road to recovery.”

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