Deficit Hits $126 Billion In Fiscal First Quarter

Author: Jonathan Weisman

Published: January 9, 2004

The federal budget deficit reached $126 billion in the first three months of the 2004 fiscal year, as improving tax receipts were outpaced by rising federal spending, congressional auditors said this week.

The first quarter total puts the deficit on pace to top $500 billion and adds weight to increasingly insistent calls for more attention to the government's deteriorating fiscal health. Economists with the International Monetary Fund warned Wednesday that the twin U.S. budget and trade deficits "pose significant risks for the rest of the world."

The IMF paper came three days after former Treasury secretary Robert E. Rubin,Brookings Institution economist Peter R. Orszag and Wall Street economist Allen Sinai presented a paper warning of "financial and fiscal disarray" from a federal budget "on an unsustainable path." Orszag and Rubin are Democrats, but Sinai, the chief global economist for Decision Economics Inc., was a prominent supporter of President Bush's tax cuts.

The newest analysis by the Congressional Budget Office, Capitol Hill's nonpartisan scorekeeper, portrays a modestly improving tax-receipts environment, compared with the first quarter of 2003. But those improvements are being swamped by rising spending. In the first quarter of fiscal 2004, tax revenue rose by 2.8 percent, after three consecutive years of decline.

But spending rose by 5.4 percent, propelled by a 15.6 percent increase in defense spending and significant jumps in Social Security, Medicare and Medicaid expenditures.

Treasury Secretary John W. Snow said this week that the deficit remains manageable and will be brought under control by restraints in spending. And Treasury officials yesterday rejected the IMF warning as "breathless hyperbole."

"The paper seems to conclude that if everything goes wrong in the U.S. economy, and no one does anything about it, that would be bad," said Treasury spokesman Tony Fratto. "That's not exactly groundbreaking."

But the IMF is hardly alone in its warnings. Several Wall Street economists have called on Bush to present a detailed plan for getting the nation's fiscal house in order. In March, the Committee for Economic Development, a business and academic organization, broke with most of the business world and called for immediate action -- including a halt to new tax cuts -- to address the growing deficit.

"It's pretty interesting that there isn't any party left, except the Republican Party, that isn't saying there's a problem here," said William G. Gale, an economist at the Brookings Institution.