Climbing Deficit Renews Battle Over Tax Cuts Versus Spending

By Christine Hall | July 7, 2008 | 8:29 PM EDT

( - Upward-creeping deficit estimates have renewed squabbling over who or what to blame - tax cuts, spending or the recession - and whether short-term deficits are even a problem in a $10 trillion economy.

The Bush administration Office of Management and Budget (OMB) Tuesday announced a revised deficit projection of $455 billion for fiscal year 2003 and another $475 billion in 2004.

The OMB's forecast in February was for a $304 billion 2003 deficit.

White House spokesman Scott McClellan characterized the deficit as a "concern" that is "manageable" through spending restraints and economic growth. McClellan said the president wants to cut projected budget deficits in half by 2006.

OMB Director Josh Bolten maintained that $455 billion might seem high in nominal terms but that it's relatively small when compared to economic output. A $455 billion deficit constitutes just 4.2 percent of gross domestic product, well below a one-time peak of 6 percent, Bolten said.

The administration cited economic and national security spending priorities post-9/11. But Democrats were quick to blame the higher deficit estimates on the Bush tax cuts.

"There is no excuse for a $450 billion record deficit this year," said Rep. Charlie Rangel (D-N.Y.), ranking Democrat on the Ways and Means Committee. "September 11th didn't give us that deficit. The poor people didn't give us that deficit. The war in Iraq didn't even give us that deficit.

"The deficit is the result mainly of massive, irresponsible tax cuts for the richest Americans and the lack of any real plan to boost the economy and put people back to work," Rangel charged.

Democratic presidential hopeful Joe Lieberman took the opportunity to blast the Bush administration and refer to the present debate over the president's statement about Iraqi dictator Saddam Hussein seeking a uranium purchase in Africa. "President Bush is repeating two dangerous habits: misleading the American people and ducking responsibility for his mistakes," Lieberman told news sources.

Americans for Tax Reform, meanwhile, admonished "big-spending liberals" for demonizing tax cuts and instead blamed the deficit on spending and a slow economy. According to ATR, fully 68 percent of the FY '03 deficit is due to spending.

OMB has noted that over the past six years, federal spending has grown by 48 percent - almost two times the growth of family income.

The deficit hawkish Concord Coalition pounced on both "small government tax policies and big government spending initiatives" from Congress this year.

But "this year's deficit is not the biggest problem," said Phil Smith, national grassroots director for the coalition. "The biggest problem is the trend and that next year's deficit is projected to be even larger."

Indeed, Federal Reserve Board Chairman Alan Greenspan testified on Tuesday that long-term, substantial deficits could bring higher interest rates and slow economic growth.

But some economists downplayed the importance of short-term deficit projections.

"We've never had a slump without being in deficit for a while," said Cato Institute economist Alan Reynolds.

"We spent most of our lives [since the 1980s] chasing... these long-term deficit projections," Reynolds added. "Remember that [Reagan administration OMB Director] David Stockman said we had $200 billion deficits as far as the eye could see. Well, his eye couldn't see far enough" because the federal government ran surpluses by the late 1990s.

Reynolds says that tax cuts aren't a factor in present deficits.

"They haven't had a chance to kick in yet, so it's pretty hard to say that actual deficits...are caused by tax cuts," said Reynolds. Even the 2001 tax cuts aren't yet fully phased in, he said. "So let's give it a chance."

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