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Budget Deficit to Set Record

Times Staff Writers

White House officials said Tuesday that this year’s budget deficit would reach a high of $427 billion, propelled by President Bush’s request for an additional $80 billion for war costs in Iraq and Afghanistan.

Separately, congressional analysts forecast a generally worsening budget outlook, saying the federal deficit would become a knottier problem in the next 10 years.

Together, the developments suggested Bush would have a harder time than previously thought in keeping his promise to cut the deficit in half by the end of his presidency. White House officials said, however, that they would still meet that goal.

On Capitol Hill, the news caused Republicans and Democrats to wring their hands.

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“Difficult debates and choices are at our doorstep,” said Sen. Judd Gregg (R-N.H.), chairman of the Senate Budget Committee and an administration ally who has called for new controls on entitlement spending. “If we do nothing, our kids and grandkids will be overwhelmed by the cost of our inaction.”

Bush on Feb. 7 will send Congress his proposed budget for the fiscal year that begins in October -- setting off a debate among Republican lawmakers on how to balance the competing goals of deficit reduction, extending the president’s tax cuts and approving an overhaul of Social Security that could cost more than $1 trillion.

In July, the administration had projected this year’s budget deficit would hit $331 billion. The deficit last year was $412 billion, a record.

As U.S. troops fight deadly, rear-guard insurgencies in Afghanistan and Iraq, the cost of the conflicts has far exceeded initial predictions from senior Bush administration officials.

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The president’s request for additional war funding -- if approved as expected -- would bring the total authorized for the current fiscal year to $105 billion, compared to $87 billion last year for military operations and reconstruction aid in Iraq and Afghanistan.

The new request also would raise the total cost of military operations since Sept. 11, 2001, to about $280 billion, far exceeding many initial estimates.

Larry Lindsey, then-director of the president’s National Economic Council, estimated before the Iraq war began that its total cost would be $100 billion to $200 billion.

The estimates were dismissed by other administration officials as too high, and Lindsey was fired shortly afterward.

In spring 2003, top administration officials, including Deputy Defense Secretary Paul D. Wolfowitz, said that Iraq’s vast oil reserves would help defray the costs of an extended U.S. occupation. Nearly two years later, the Iraqi government is able to pay for only a small fraction of its reconstruction, let alone the U.S. forces.

Of the administration’s new $80-billion request for Iraq and Afghanistan, about $75 billion would go to the Pentagon.

Military operations in Iraq are costing on average $4.3 billion a month, and in Afghanistan, $900 million, a senior official said.

Although officials revealed few specifics about how the new money would be spent, one senior administration official said much of it would be devoted to refurbishing and replacing Army equipment and to training Iraqi security forces -- which the U.S. hoped would bring about a reduction of American troops in Iraq.

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Another chunk of the money would go toward combat brigades that the Army is developing to ease the strain of overseas deployments on its soldiers. The supplemental request also would help fund the additional 30,000 soldiers Congress authorized for the Army last year, a senior official said.

In addition to the $75 billion for the Pentagon, $5 billion would go to State Department projects, such as building a new embassy in Baghdad, providing relief to the stricken Darfur region of Sudan and fostering peace between Israel and the Palestinians.

“Most of these funds will support American troops on the ground by continuing to provide them with the equipment and other supplies they need,” Bush said in a statement.

“And resources are included to accelerate efforts to train and equip Iraqi and Afghan forces, so they can assume greater responsibility for their own security.”

The administration’s request for supplemental war funding comes months later in the budget process than it did last year, leading to speculation that the White House purposefully delayed announcing the total figure until after November’s presidential election.

Although the budget request no doubt will bring fresh criticism from Democrats about the course of the Iraq war, the money is expected to be approved relatively swiftly, because lawmakers hesitate to cast votes against money earmarked for U.S. troops in harm’s way.

“There may be a lot of debate about whether or not the effort [in Iraq] is successful ... but there will not be any debate about whether we support the troops,” said Sen. Ben Nelson (D-Neb.).

“If we want the American troops to come home, we have to do what we can to buy that ticket. Eighty-billion dollars is part of it.”

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In its forecast Tuesday of a rising deficit in the coming decade, the nonpartisan Congressional Budget Office did not include the new request for war funding. The budget analysts projected a cumulative deficit of $1.3 trillion from 2005 to 2014.

The 10-year figure represented an increase of nearly 60% from the budget office’s comparable $861-billion estimate just four months ago, partly because of recent legislation extending popular tax breaks that were due to expire, such as relief from the “marriage penalty.” In addition, disaster assistance to victims of the Florida hurricanes last year prompted the budget office to project similar expenses in the future, in accordance with forecasting rules.

The budget office’s figures also did not take into account the revenue loss to the Treasury if Congress were to give its expected approval to an extension of major tax cuts that were enacted in 2001 and 2003, and which were scheduled to expire in the next 10 years. Nor did it include potential relief from the alternative minimum tax -- which was designed to prevent high-income taxpayers from using tax breaks to escape most income taxes but was beginning to bite ordinary taxpayers as inflation pushes their income higher.

A handful of Republicans tried to argue that there was some good news in the Congressional Budget Office report. “I hope these numbers temper continued efforts to create unprecedented levels of new spending so that our economic recovery can continue without being drowned in red ink,” said Sen. John Cornyn (R-Texas).

Democrats expressed particular anger at the administration’s insistence on keeping war costs, Social Security restructuring and the revenue losses from extending Bush’s tax cuts out of the budget that the president was to submit. Excluding those costs, they said, would allow Bush to spend money without counting the expenses, making the deficit look artificially low.

“Why don’t you just leave out some more things and claim you balanced the budget?” said Sen. Kent Conrad of North Dakota, the ranking Democrat on the Senate Budget Committee. “The only way he got to cutting the deficit in half is, he just left out things.”

Conrad and House Democratic leader Nancy Pelosi (D-San Francisco) warned about the long-term effects financing the additional debt might have on the economy.

“Economists have warned that huge deficits are a drag on the economy that will eventually force interest rates up. If we do not act to restore accountability, then mortgages, car loans, credit card debt, and student loans will all cost more,” Pelosi said.

Times staff writer Richard Simon contributed to this report.


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