US in red with $480bn debt

THE US federal government is in store for at least eight more years of budget deficits, including a record $480 billion shortfall in 2004, congressional budget, according to analysts.

The Congressional Budget Office also warned that the numbers will become more dire if the White House gets its way on tax cuts and Congress fails to rein in spending. They said the budget outlook "has worsened substantially" since its last review in March, when it put next year's deficit at $200 billion.

Much of that is the result of subsequent acts of Congress to cut taxes and increase spending for defence and the war in Iraq, it said.

The CBO, a nonpartisan group, said the budget will edge back into the black in 2012 and 2013, but will record an accumulated deficit of almost $1.4 trillion in the 2004-2013 period. In March, it predicted a surplus of $891 billion in that period.

Democrats seized on the report as proof that the Bush administration policy of cutting taxes while demanding more for defence and homeland security was threatening the nation's economic viability.

"I think this is a moral problem more than an economic problem," said John Spratt of South Carolina, top Democrat on the House Budget Committee.

He said the administration was draining the government's ability to pay for Social Security and Medicare at a time when 77 million baby boomers are approaching retirement, while saddling future generations with repayment of a national debt that could double to $7 trillion by 2013.

The White House and GOP leaders, however, argued that the deficit was manageable, only a small percentage of an ever-larger national economy, and that they could reduce it by strengthening the economy and holding down spending.

"We've got to hold the line on spending. That's what this report says, if it says anything," said House Budget Committee Chairman Jim Nussle.

The White House's Office of Management and Budget has predicted that, under the president's budget plans, a deficit of $475 billion will be halved to $213 billion in 2007, even if further tax cuts are enacted and a prescription drug benefit is approved for seniors.

By comparison, the defence budget this year is about $400 billion and some $493 billion in Social Security cheques are expected to be received by 46 million seniors next year.

CBO Director Douglas Holtz-Eakin made clear that his office's estimates could be affected by "an enormous range of possible outcomes."

The estimates do not take into account future policy changes, suchas the $400 billion Medicare prescription drug plan Congress is working on, and assume that Bush tax cuts scheduled to expire in 2010 will not be extended, as is likely to happen.

Costs of the Iraqi operation are based solely on an emergency spending bill passed this year, rather than any long-range projections.

That average out to more than $65 billion a year over the next 10 years, the CBO said.

The CBO said the $1.4 trillion deficit over the next decade would grow by $1.6 trillion if the tax cuts are extended, by $400 billion with a prescription drug benefit and by another $400 billion if steps are taken to revise the "alternative minimum tax," started in 1970 to prevent wealthy individuals from dodging income tax but, because it is not indexed for inflation, affecting more and more middle-class families.

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