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Government Predicts US Budget Deficit For Next Two Years - 2002-01-24

The Congressional Budget Office predicts the U.S. government will return to budget deficits this year and next, after running four years of surpluses. The forecast is adding fuel to partisan debate over budget issues ahead of Congressional elections in November.

The nonpartisan Congressional Budget Office, or CBO, says the deficit will be some $21 billion this year and $14 billion next year.

That compares with a surplus of $127 billion last year. Just a year ago, the CBO had predicted a surplus of $313 billion this year, and $359 billion next year.

The CBO also revised its earlier projection of a 10-year surplus from $5.6 trillion dollars down to just $1.6 trillion.

CBO Director Dan Crippen presented the findings to Senate and House Budget committees Wednesday.

Democrats like Senate Budget Committee chairman Kent Conrad of North Dakota blame the $1.3 trillion dollar tax cut advocated by President Bush and enacted last year for the erosion of the surplus.

Senator Conrad says he would have liked smaller tax cuts to stimulate the slowing economy. He argues that the broader tax reductions may hurt efforts to shore up the nation's cash-strapped social security pension fund and the medicare system, which pays health care costs for retirees. "We proposed substantially smaller tax reductions over ten years," he said, "because we feared the President's proposal endangered social security and medicare."

But Republicans say it is not the tax cut, but recession and the effort to fight terrorism in the wake of the September 11 attacks that helped wipe out the surplus.

Senator Pete Domenici of New Mexico is the ranking Republican on the budget committee. "Normally it is difficult to conduct a war and not have deficits," he said.

The CBO's Mr. Crippen suggested both Republican and Democratic arguments are right. He said a combination of a weak economy and the $1.3 trillion tax cut enacted last year have contributed to the disappearance of the surplus.

He adds that the September 11 attacks made the situation even worse. "The attacks on September 11," he said, "probably exacerbated the recession we are already in, and while most of the initial impact seems to have warn off, at least some industries such as airlines, have not recovered. The possibility of future attacks has increased uncertainty and led to a significant and growing level of expenditures on security."

CBO projections are based on existing policies. But budget analysts expect Congress to approve additional spending for military and homeland security and perhaps additional tax cuts to spur the economy - moves that will only expand projected deficits.