Year's deficit projected at $427 billion

THE BALTIMORE SUN

WASHINGTON - New spending for military operations in Iraq and Afghanistan will help swell the deficit to a record $427 billion this year, a senior administration official said yesterday, as congressional analysts released projections that show the nation's overall budget situation worsening.

The estimates, coming as President Bush prepares to send his budget to Congress next month, highlighted the increasing strains the war has placed on the federal budget and the difficulties Bush faces as he seeks to impose fiscal discipline amid rising deficits.

Bush will send Congress a roughly $80 billion request for Iraq on the heels of his regular budget submission Feb. 7, senior administration officials said.

They outlined the spending request just after the Congressional Budget Office released new projections showing that the deficit will reach $368 billion this year, not counting the cost of the war in Iraq.

The government will pile up $855 billion in debt over the next decade, according to the CBO forecast, even without additional spending in Iraq and Afghanistan, and apart from the cost of Bush's proposal to add private retirement accounts to Social Security, which could cost as much as $2 trillion during the same period.

The figure also omits the cost of Bush's plan to make permanent the tax cuts he has signed into law since taking office in 2000.

The White House's projected deficit of $427 billion for this year exceeds last year's record of $412 billion in dollars, although administration officials said that, as a percentage of the overall economy, the size of the shortfall has declined slightly.

Still, while the cost of the war in Iraq is dwarfed by the cost of other major conflicts in U.S. history, such as Vietnam and World War II, the darkening deficit picture - made grimmer by the impending retirement of the baby boom generation - makes paying for it one of the most formidable challenges of Bush's second term.

"President Bush faces the biggest budgetary challenge since President Roosevelt had to finance World War II," said Brian Riedl, a budget analyst at the conservative Heritage Foundation.

Officials described Bush's decision to publicize his request before its formal release as a way of sending a message to U.S. troops and Iraqi insurgents just days before elections there that the U.S. commitment to the mission remains strong.

The request "again makes clear to terrorists that our resolve is firm and we will complete our mission," Bush said in a statement, in which he urged lawmakers to grant the measure bipartisan support.

But the early disclosure of the size of the measure, known as a "supplemental" because it comes on top of the routine annual spending measures that fund the government, also dramatized the difficult work Bush faces in convincing Congress to find the cuts necessary to send him the austere overall budget he is about to request.

The president has pledged to cut the deficit in half by 2009, a feat that would demand strict spending restraint in a Congress not known for being frugal.

Some senior aides on Capitol Hill speculated that Bush publicized the new war spending figure to coincide with the release of CBO's deficit projections, in a signal to lawmakers and the public that they are facing a more dire deficit picture than the analysis showed.

On its face, the CBO report looks encouraging - it shows deficits declining steadily from $412 billion, a high in nominal dollars, from next year until 2015 - but budget analysts and outside experts said those numbers mask more sinister figures and trends that portend declining fiscal health for the country.

War, tax cuts, boomers

If war spending were accounted for, the office found, the next decade's deficit would grow from $855 billion to $1.4 trillion. If the cost of making Bush's tax cuts permanent is included, it would grow to $2.7 trillion.

Perhaps most alarming for budget hawks, the impending retirement of the baby boom generation is swelling entitlement spending severely. The share of the federal budget taken up by Social Security, Medicare and Medicaid will skyrocket from 42 percent to 55 percent over the next decade, the CBO report found.

By making it clear now that war costs are still high and deficits are still serious, Bush was seeking to "create a climate of shared sacrifice on Capitol Hill" and remind lawmakers that the cuts he will request "should be taken seriously," said Michael E. O'Hanlon, a scholar at the Brookings Institution.

The president might also have been trying to ease the accomplishment of his deficit-cutting pledge, budget analysts said, by calling attention to a swollen deficit now, making future shortfalls look smaller by comparison. The CBO analysis projected that Bush will fall just short of halving the deficit in the next five years, forecasting a deficit of $207 billion in 2009.

Bush is on track to meet his deficit-cutting goal, a senior administration official said yesterday, adding that his target would be to reduce the deficit to half of the $521 billion shortfall projected last year, which would amount to $260.5 billion.

Enactment of the forthcoming supplemental request would bring the tally of spending in Iraq to $280 billion, far more than what administration officials originally projected.

It is a reminder that the U.S. commitment in Iraq has not subsided; there are indications the Pentagon could return next year and request at least $80 billion more for operations in Iraq and Afghanistan. A top Army general told reporters at the Pentagon on Monday that Army contingency plans call for the current number of troops to remain in Iraq through 2006.

There are 120,000 Army soldiers and 30,000 Marines and other military personnel in Iraq. Still, the Army general said that a final decision on the number of U.S. troops in Iraq would be made by ground commanders.

The war in Iraq is "a lot more expensive than anyone was led to believe up front. It greatly increases the deficit and makes cutting the deficit in half by 2009 virtually impossible, especially because it now looks like it's going to continue for a long time," said Stanley E. Collender, the top budget consultant at Financial Dynamics, a communications firm. "It seriously puts pressure on every part of the budget. All appropriated programs are up for grabs."

The request gave administration critics ammunition for their argument that the war, billed initially as a brief and inexpensive operation, has instead been a poorly planned engagement that is dragging on and sapping money from already-strapped federal coffers.

"Ever since the statue of Saddam Hussein fell, the president and his team have crafted a postwar plan on the fly," said Sen. Robert C. Byrd of West Virginia, the senior Democrat on the Appropriations Committee, in a statement yesterday. "Broken policies supported by billions of dollars are still broken policies."

General breakdown

Three senior administration officials, speaking on condition of anonymity, briefed reporters yesterday on the supplemental spending package. They declined to break down the overall amount, which they said would be $80 billion or slightly greater, with about $75 billion going to the Defense Department for military operations and the rest to the State Department for the building of a U.S. Embassy in Baghdad, reconstruction in Iraq, and the humanitarian crisis in Sudan's Darfur region.

The package includes aid to the Palestinians and ultimately will include funding for U.S. assistance to Asian countries in the aftermath of the tsunami, the officials said.

The lion's share of the funding will go to the Army, one official said, and most will be used for refurbishing U.S. troops' equipment and enhancing their combat capability. The package also will finance the training and equipping of security forces in Iraq and Afghanistan.

About $1 billion will be included to help combat roadside bombs, which, along with rocket-propelled grenades and mortars, account for more than half the U.S. combat deaths in Iraq, according to the Pentagon.

Sun staff writer Tom Bowman contributed to this article.

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