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Thursday, 24 January, 2002, 01:33 GMT
US prepares for budget battle
President George Bush
President Bush will continue to push for tax cuts
Kevin Anderson

US budget forecasters slashed $2 trillion from their estimates of government surpluses over the next decade, and Washington watchers are bracing for the battle over who lost the surplus.

A combination of increased spending, the Bush administration's $1.3 trillion tax cut and a slowing economy have all conspired to reduce the projected surplus over 10 years from $3.4 trillion as predicted last August to $1.6 trillion.

Republicans and Democrats are staking out their positions in the budget battle as they attempt to gain the upper hand in critical mid-term elections.

Republicans hold a thin majority in the House of Representatives, and Democrats have a one-seat majority in the Senate.

Battle lines drawn

In the battle over who lost the budget, Democrats will say that under their watch that the economy was prosperous and that they turned deficits into surplus, said Thomas Mann of the Brookings Institution.

Under Republicans, Democrats will argue that the prosperity turned to recession, he said.

Democrats will try their damnedest to make [the loss of the surplus] an issue

Max Sawicky
Economic Policy Institute

They will also say that the president's tax cuts will cause long-term deterioration of the US fiscal situation.

"They will say the president played fast and loose with the numbers last spring," when he pushed the tax cut through congress, Mr Mann said.

Senate budget panel chairman, Senator Kent Conrad said: "The president told us and told the American people that we could have it all. He was wrong by a country mile."

The Republicans will respond that the recession began in 2000 before President Bush took office and that September 11 and the souring economy have reduced the surpluses.

"They will argue that it is crazy to raise taxes now or to take any steps that would work against economic recovery," Mr Mann added.

Little incentive

The White House argued that additional tax cuts were necessary to coax the economy out of recession, and White House spokesman Ari Fleischer said the government still should post a surplus.

"At the end of the day the government, instead of having a gargantuan surplus, will now have a very large surplus," Mr Fleischer said.

Neither party will have much incentive to dramatically alter the fiscal picture either by making drastic cuts in spending or in reversing tax cuts already in place.

"No one believes that anything should be done with the economy now in recession to shrink the deficit or to move back to a surplus immediately," Mr Mann said.

The debate will focus on the long-term fiscal situation once the economy is growing again.

New era of scarcity

President Bush has repeatedly said that his preference is to cut taxes. He believes that the more money that comes into Washington, the more politicians will spend.

But, the tax cuts and recession have brought back an era of scarcity to Washington where programmes will be squeezed.
the US capitol
Congress will engage in an old guns-versus-butter debate, says Max Sawicky

"It is going to be back to the old guns versus butter debate," said Max Sawicky of the Economic Policy Institute. "What's left for non-defence areas will come under severe pressure."

President Bush announced Wednesday his intention to seek for a $48bn increase in defence spending.

Mr Sawicky said that low and middle-income people will lose, as services are limited because the government has less money to spend.

And if Congress fails to pass a meaningful economic stimulus package, it could impact the unemployed and the state and local governments that will have to provide them services.

But in the end, Mr Sawicky is unsure of whether the battle over the surplus will give much advantage to either party, especially the Democrats who look set to go on the offensive.

"Democrats will try their damnedest to make (the loss of the surplus) an issue," he said, but he said that so far they have got little mileage out of it.

"The Democratic leadership has placed way too much emphasis on paying down the debt," Mr Sawicky said. "It's bad policy and it's bad politics."

The BBC's Stephen Evans
"The economy isn't producing as much as it did"
See also:

23 Jan 02 | Business
US budget surplus gone
29 Oct 01 | Business
Record US budget surplus achieved
22 Aug 01 | Business
US budget surplus slashed
31 Jan 01 | Business
US budget surplus boost
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