White House now predicting smaller deficit for fiscal 2003

The federal budget deficit for fiscal 2003 will likely come in at under $400 billion, below the $450 billion forecast by the administration just last July, according to OMB Director Joshua Bolten.

Bolten, who made the prediction Wednesday at a breakfast for reporters in Washington, said the more optimistic view is largely the result of slower expenditures than anticipated in July and is "modest good news" about revenue collections, which now seem to be "firming" after a long period of weakness.

"Revenue collections fell off a cliff over the last few years and are substantially responsible for the deficit situation," Bolten said.

The administration plans to announce the exact 2003 deficit tally at the end of the month.

The total will not include the administration's $87 billion supplemental spending proposal for Iraq and Afghanistan, which is a fiscal 2004 expenditure. Bolten said that although he is not planning any further supplemental proposals for 2004, he could not rule out the prospect either.

But Bolten indicated during the breakfast that the rosier prediction did not mean the era of deficits is about to come to an end.

He said future deficits generally would be in "the same range" that the administration announced in the July mid-session review, which called for a fiscal 2004 deficit of $475 billion declining to a deficit of $213 billion by fiscal 2007.

But despite the huge supplemental now being debated in Congress, Bolten said the administration remains "well within sight" of cutting the deficit in half within five years, a goal often repeated by President Bush during public appearances.

This assumes, however, that Congress continues "pro-growth policies"-a phrase White House officials have used to refer to the tax cuts passed in 2001, which many Democrats want to at least partially rescind-and "fiscal restraint."

Bolten asserted that deficits at the levels predicted by the administration would not harm the economy, but warned that the prospect of future expansion of entitlement programs could cause huge increases in red ink.

"The real problem comes in about a decade from now, when the baby boomers retire and we see enormous challenges to our budget situation," Bolten said.

Bolten predicted that Bush would put entitlement program reform on the agenda for his 2004 campaign. Some GOP strategists are concerned that Democrats can use issues such as Social Security reform to their advantage against Republicans and the president.

Bolten said he was optimistic that Congress will pass a bipartisan supplemental that is "essentially the full package the president has asked for" and "largely on the terms he has asked for it."

Dan Senor, the spokesman for the U.S. provisional authority in Iraq who was also at the breakfast, and countered some lawmakers' suggestion to turn some of the grants proposed by the administration for Iraq into loans to reduce the cost of the supplemental to U.S. taxpayers. This strategy, Senor warned, would saddle Iraq with too much debt and may create a "Weimar Republic."