The ballooning deficit

WASHINGTON -- If President Bush is not careful, he may find himself on the defensive this campaign season not over the war in Iraq but over his decision to pay for it and other outlays with swelling deficits.

With a budget shortfall estimated to reach $500 billion this fiscal year, or just under 5 percent of gross domestic product, the White House is under pressure to rein in spending. Otherwise, says a strange alliance of Democratic presidential contenders and Republican budget hawks, the country's hard-won economic recovery could crumble under the weight of rising interest rates.

"I'm hearing a lot of anger," writes Richard Viguerie, a prominent fiscal conservative, in a recent direct mailing. "For the first time, people [are talking] about `it would not be the worst thing in the world if Howard Dean were president' because the size of government would stay still rather than increase 50 percent under a second Bush administration."

The budget deficit has reached record proportions under Bush, owing to his tax cuts and soaring government expenditures. Under Bush, nondefense discretionary spending -- commitments beyond "entitlements" like Medicare and Social Security -- has grown by 3.7 percent, compared with 3.3 percent during the second Clinton administration. Though economists and political analysts credit tax relief as potent fuel for economic recovery, they warn that the next president could get the bill. A report issued last month by the nonpartisan Congressional Budget Office estimated that tax revenue will have to rise dramatically over the next decade to pay for Medicare reform -- expected to cost some $400 billion -- and Social Security, which is facing a huge burden from the retirement needs of baby boomers.

The Heritage Foundation, a conservative Washington think tank, charged the Republican-dominated Congress with low-balling the rate of growth in fiscal spending it would request for the current fiscal year. Discretionary spending will grow by 9 percent this year, according to a Heritage report, not the 3 percent commonly cited on Capitol Hill.

So long as the economy continues its robust recovery, neither party expects the ballooning deficit to be a major factor in the presidential campaign. But future presidents could face the prospect of tax hikes and spending cuts. While the administration estimates a budget-deficit burden equal to 2 percent of gross domestic product over the next five years, nonpartisan groups project deficits of 3 to 4 percent over the next decade. "By minimizing the importance of deficits you encourage more," says Robert Bixby, executive director of The Concord Coalition, a deficit-hawkish research group. "It's easy to slide into a pattern of permanent deficits."