Federal deficit less than expected this year

Author: Anchor Dan Brown, Reporter Marty Goldenson

Published: September 7, 2004

DAVID BROWN, anchor: Well, one can hope any new contracts might save taxpayers some greenery, especially given today's report from the Congressional Budget Office. On the one hand, the Capitol Hill number-crunchers tell us the federal deficit will be less than expected this year. Before anyone breaks out the champagne, though, $422 billion of red ink is still an all-time record. It means Washington is spending 5 bucks for every 4 it takes in. As MARKETPLACE's Marty Goldenson reports, the revised bottom line is obviously going to be a battle line, too.

MARTY GOLDENSON reporting: The record deficit is a political target. Expect the Democrats to blame the president's tax cuts and to sound very much like University of Texas economist James Galbraith.

Mr. JAMES GALBRAITH (Economist, University of Texas): Basically, we have a large deficit now because the economy's in terrible shape, and we have not been adding the jobs and, therefore, have not been getting the tax revenues that we would normally have expected three years after the end of a recession.

GOLDENSON: For their part, the Republicans, who at one point predicted an even larger deficit, can cite the numbers as good news. Already Republican Sean Spicer from the House budget panel interpreted the deficits as going down. And, indeed, the CBO report does list billions in unexpected tax revenue adding to the federal coffers. Len Burman, director of the Tax Policy Center, argues that both parties live in fiscal dreamland. `President Clinton only balanced the budget by gridlock,' he says. When Republicans refused to pass his program, then he refused to cut taxes. `President Bush,' says Burman, `passes expensive programs, like the Medicare drug bill, and then he cuts taxes to boot,' the message being...

Mr. LEN BURMAN (Director, Tax Policy Center) : You don't have to pay for it. That's the best of all messages, in the short term, in political terms.

GOLDENSON: Republicans can also argue, as liberals often do, that today's deficit numbers are nothing to panic about because as a percentage of the whole economy, they are modest. In fact, proportionately, they are smaller than the biggest deficits ever run up by Ronald Reagan. I'm Marty Goldenson for MARKETPLACE.