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Tuesday, 8 January, 2002, 00:05 GMT
Bush argues for budget deficit
US President George Bush with Federal Reserve Chairman Alan Greenspan (right) and Secretary of Treasury Paul O'Neill (centre).
Bush refuses to raise taxes to cover the deficit
By the BBC's Mike Fox in Washington

President George Bush has said it would be justified to allow the US budget to run at a deficit while the country is involved in fighting the war against terrorism.

He also said it would be a mistake to raise taxes.

It is clear that President Bush has decided to launch an aggressive defence of his economic strategy, which now seems certain to be a central theme of this year's congressional election campaign.

Speaking to reporters before a rare meeting with the Chairman of the Federal Reserve, Alan Greenspan, Mr Bush said he was optimistic that the economy would recover this year - but he called on both sides of Congress to extend their unified position on the war against terrorism to the economic arena.

Loosening the purse strings

He wants the Senate to agree on an economic-stimulus bill after Democrats blocked a $40bn package of measures last month.

Bush in Portland, Oregon
Bush's reassurances on taxes delighted audiences in California
And he justified his current economic strategy, which is predicted to take the budget into a deficit this year:

"This nation might have to run deficits in time of war, in times of a national emergency or in times of recession, and we're still in all three. It makes sense to spend money necessary to win the war," President Bush argued.

Balancing the budget was a cornerstone of the Clinton administration, but President Bush feels justified in running a deficit - especially if it allows other policies to stay in place.

He said it would be a disaster if taxes were raised.

At a town hall-style meeting in California at the weekend, he said cancelling the rest of his planned tax cuts, as the Democrats want, would be the equivalent of raising taxes, and that would only happen over his dead body.

This was greeted with loud cheers from the audience - but Democrats are bound to hit back at the criticism of their policies.

See also:

06 Jan 02 | Business
Bush will defend tax cuts 'to death'
02 Jan 02 | Business
US factory output picks up
19 Dec 01 | Business
Dow signals US recovery
19 Dec 01 | Business
US trade soars to recovery
12 Dec 01 | Business
False starts for US economy optimism
11 Dec 01 | Business
US recession may already be over
28 Nov 01 | Business
Americans poised for tax holiday
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