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Tuesday, 27 August, 2002, 20:30 GMT 21:30 UK
US budget surplus forecasts slashed
The US government's budget surplus is expected to be 80% smaller than previously thought, according to the latest forecast from The Congressional Budget Office (CBO).

The budget watchdog has slashed its forecast for 2002 through 2011 to an accumulated total of $336bn (220bn).

In March, the CBO had forecast that the surplus would be $1.7 trillion. Last year, it had forecast a $5.6 trillion surplus.

The "vanishing surplus" has created much anger in political circles ahead of congressional elections in November.

Crucially, the controversy could shift party control of both the House of Representatives and the Senate because even small shifts in votes would be enough to do so.

Tax cuts

Democrats blame the reduced surplus on President George W Bush's $1.35 trillion tax cuts announced last year.

"The budget, under Republican stewardship, is deteriorating at a rapid rate," said the leading Democrat on the House Budget Committee, John Spratt.

"The problem is getting worse, and the Bush administration has no plan to correct it."

The Republicans insist that the tax cuts have been crucial to lift the US out of recession and to avoid excessive economic damaged from the recent weakness in the stock market and the fall-out from the 11 September attacks.

So rather than blaming the tax cuts, spending by Congress should be targeted, they say.

"Democrats want to have their cake and eat it," said House Budget Committee Chairman Jim Nussle.

"These projections reinforce the need for Congress to constrain spending to put us back on the path to fiscal health."

Diverging predictions

The CBO's predictions are based on the government's ongoing economic policies, rather than on its intended policies.

As a consequence, they are much less optimistic about the future than are the forecasters working for the Bush administration.

The White House's prediction for next year of a $62bn budget deficit is at odds with the CBO's estimate of a $145bn deficit.

Making the situation even more serious is the CBO's assumption that Mr Bush's tax cuts will expire in 2010, as they are scheduled to do.

Few observers believe they will. And if they do not, the US budget position could turn out worse than anyone has yet predicted.

However, the CBO offered some hope for the future, predicting that the US economy will grow at a 2.3% rate this year and a 3% rate next year.


Economic indicators

Fears and hopes

US Fed decisons

IN DEPTH
See also:

09 May 02 | Business
20 Mar 02 | Business
23 Jan 02 | Business
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