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Last Updated: Monday, 26 January, 2004, 17:38 GMT
US budget deficit reaches $500bn
President Bush signing his tax cutting bill
President Bush says he will get the deficit under control
The US Federal budget deficit could reach $2.4 trillion over the next 10 years, $1 trillion more than previously estimated, official estimates said.

The non-partisan Congressional Budget Office (CBO) said that rising spending on health and tax cuts would boost the gap between tax revenue and spending.

This year the CBO projects a record budget deficit of $477bn, falling to $365bn by 2005 as the economy improves.

President Bush says he will cut the deficit in half by 2009.

In his annual State of the Union address, Mr Bush called on Congress to exercise spending restraint and promised to freeze increases in non-defence spending and limit the overall budget increase to 4% annually.

Mr Bush will present his 2005 budget request to Congress on 2 February.

Spending spree

But so far spending has been rising quickly, fuelled by "pork-barrel" projects that Congressmen want for their own districts, and the increased cost of the war on terror and the Iraqi conflict, which was funded by an additional $87.5bn appropriation.

It is clear the Bush administration has no plan to eliminate these deficits.
House Democrat John Spratt

The new Medicare prescription drug benefit will also add $400bn to spending over the next ten years.

And meanwhile tax receipts have been falling because of the US recession and the big tax cuts passed by the Republican-controlled Congress in 2001 and 2003.

Tax cuts

The Bush administration says it is committed to reducing the budget deficit, and vice-president Dick Cheney recently said that it was "manageable."

Signs of growth:
State of the US economy

But there is a growing scepticism by conservatives within Mr Bush's own party about whether the president is committed to limiting government spending.

Treasury Secretary John Snow argues that the tax cuts will stimulate the US economy, which he estimates will grow by 4% next year, and that such growth will ultimately reduce the deficit.

However, the deficit might be higher than estimated by the CBO if Mr Bush's plan to make the tax cuts permanent is passed by Congress.

The ten-year projections assume that the current tax cuts expire in 2009.

"It's going to be a challenge to cut the deficit in half by 2009," said Bill Hoagland, senior budget adviser to Senate Republican leader Bill Frist.

Political issue

Democrats have attacked the growing budget deficit as irresponsible, and argue that the tax cuts favour the rich.

But they are divided on whether to rescind all the tax cuts, at the risk of alienating middle class voters and limiting the strength of the recovery.

"These projections confirm that deficits loom far into the future," said South Carolina Democrat John Spratt, who sits on the House Budget Committee.

"It is clear the Bush administration has no plan to eliminate these deficits," he said.

Economists have warned that the rising deficits could have long-term consequences, raising interest rates, making it more difficult to respond to economic crises, and adding to the costs of providing medical care and income support for the elderly.

In a recent report, the International Monetary Fund warned that the growing budget and trade deficits could deter private investment within the US, impede long-term productivity growth, and endanger the vitality of social security and Medicare programs.




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