- WASHINGTON (Reuters) - The
Bush administration expects the federal government to post a deficit of
$165 billion this fiscal year, a 56 percent increase over earlier projections
due in part to a surprise downturn in tax revenue caused by the stock market
sell-off, officials said.
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- While the White House will revise upward its 2002 economic
growth forecast to 2.5 percent from 0.7 percent and project a return to
surpluses in fiscal 2005, rising deficits in the near term could hurt President
Bush and his fellow Republicans in upcoming elections, where small swings
could shift control of both the House of Representatives and Senate.
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- "The president deals with the cards that were dealt
him," White House spokesman Ari Fleischer said, citing the recession
and costs associated with the war on terrorism as justification for plunging
the federal government into deficits for the first time in five years.
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- Administration officials said the new projections also
reflected a largely unanticipated decline in tax receipts from capital
gains -- a finding that could increase pressure on the president to play
a more active role in seeking to shore up the stock market.
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- Bush is already under heavy fire from Democrats for failing
to respond forcefully enough to a wave of accounting scandals that have
sent the stock market tumbling to lows not seen since 1997. Polls show
an erosion in public confidence in the economy and the administration's
economic stewardship. Consumer sentiment tumbled in early July according
to a report issued earlier on Friday.
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- According to administration officials, the downturn in
capital gains receipts dragged overall tax revenues down far more than
expected even though economic growth surged in the first quarter of 2002.
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- Capital gains taxes are generally collected from individuals
when assets are sold at a profit. As stock values dropped this year, many
investors racked up losses or held onto their shares. As a result, the
federal government collected less revenue.
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- The $165 billion projected shortfall in fiscal 2002,
which ends Sept. 30, was revised up from the $106 billion deficit forecast
by Bush in February. The Republican staff of the Senate Budget Committee
recently forecast the budget deficit would reach $152 billion in 2002.
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- The White House expects the shortfall in 2003 to drop
below $150 billion. In contrast, Senate Republicans expect the deficit
to climb to $194 billion.
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- Despite setbacks in the near term, the White House Office
and Management and Budget's mid-year budget review will project a return
to surpluses in fiscal 2005, assuming that Democrats, who currently control
the Senate, stick to the administration's proposed spending levels, officials
said.
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- UNDERESTIMATING CAPITAL GAINS
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- Administration officials say the Bush White House is
not the first to underestimate the impact of capital gains receipts on
federal budgeting.
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- Former President Bill Clinton's projections often missed
the mark. But in contrast to Bush, Clinton underestimated the capital gains
windfall as the stock market set record highs.
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- "In the late 1990s we had surprise revenue windfalls
and everyone thought it was because GDP (gross domestic product) was growing,"
a Bush administration official said. "But we're finding that that
was not the biggest factor. The bigger factor was capital gains."
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- The finding gives Bush new incentive to try to boost
the stock market. A rebound in stocks would help the federal government
return to surpluses, whereas a long-term stock slump could lead to bigger
deficits for years to come.
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- The outcome of efforts to boost investor confidence could
have serious political implications for Bush and his fellow Republicans
in November's congressional elections and beyond.
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- While polls show Bush's overall approval ratings remain
high, his marks for handling the economy have slipped.
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- A recent CNN/USA Today poll showed his approval ratings
for the economy fell from 72 percent last October to 58 percent now. A
poll by the Pew Research Center for People and the Press found 62 percent
believed Bush could do more on the economy, with only 33 percent saying
he has done as much as possible.
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- If public confidence in the economy continues to waver
into the fall, analysts said it would be a huge boost for Democrats, who
have blamed the reemergence of budget deficits on Bush's $1.35 trillion
tax cut.
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- Republicans counter that Bush's tax cut helped the United
States recover from the twin shocks of a recession and the Sept. 11 attacks.
They blame a surge in government spending advocated by Democrats, not lower
taxes, for the red ink.
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- "People who voted against the tax cut want to pretend
that the tax cut was the cause, and it's not," Fleischer said.
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