Federal Budget Deficit Reaches $422 Billion in Fiscal Year 2004; Outlook for Medicare Worsens
The federal budget deficit will reach a "record" $422 billion, or 3.6% of gross domestic product, in fiscal year 2004 and is expected to rise to $2.3 trillion over the next 10 years, in part because of the rising cost of programs such as Medicare and Social Security, according to new figures released Tuesday by the Congressional Budget Office, the Washington Post reports. The projected deficit for the fiscal year, which ends Sept. 30, is $56 billion less than CBO predicted in March, largely because of a stronger economy that increased tax revenue.
However, it is $46 billion more than the record shortfall in FY 2003, according to the Post (Weisman, Washington Post, 9/8). CBO says the deficit will likely fall to $348 billion, or 2.8% of GDP, in FY 2005, but the "outlook beyond 2006 is worsening," according to the Cox/Minneapolis Star Tribune (Geewax, Cox/Minneapolis Star Tribune, 9/8).
With the "approaching retirement of the baby boom generation," the federal deficit will face growing pressure from Social Security, Medicare and Medicaid, CBO says, the AP/Las Vegas Sun reports (Fram, AP/Las Vegas Sun, 9/7). By 2014, the cost of paying for such government benefits for baby boomers will "hit the government hard," CBO says, according to the Post. Social Security and Medicare currently total $789 billion, or 34% of federal spending, the Post reports. That amount will increase to $1.5 trillion, or 42% of the budget over the next 10 years, according to CBO (Washington Post, 9/8).
Combined spending on Medicare, Medicaid and Social Security is expected to rise from 8.3% of GDP in FY 2005 to 10.3% of GDP in FY 2014. CBO Director Douglas Holtz-Eakin said the Medicare prescription drug benefit could increase program costs by 31% from FY 2005 to FY 2007 (Cohn, CongressDaily, 9/7). The New York Times reports that the drug benefit "will become more expensive each year after [it launches in 2006] as the number of elderly beneficiaries rises" (Andrews, New York Times, 9/8).
Republicans said that CBO's budget deficit projection is "no reason for panic" because as a percentage of the overall economy, it is smaller than the largest shortfalls of the 1980s and early 1990s, according to the AP/Sun (AP/Las Vegas Sun, 9/7).
However, Democrats criticized the Bush administration for "reckless[ly] transforming a record surplus" under the Clinton administration to a "record deficit" just a few years before the retirement of the baby boomer generation raises Medicare and other entitlement costs, the Times reports (New York Times, 9/8).
CBO's new estimates "immediately provided political fodder" for the election campaigns of President Bush and Democratic presidential nominee Sen. John Kerry (Mass.), the AP/ Sun reports.
Tim Adams, policy director for the Bush campaign, said the new projections are "a sign of the economic growth that is a result of President Bush's leadership on tax relief." He added that Kerry's budget plans, which include health care program expansions, would mean "higher taxes on all Americans or a budget deficit that is completely out of control."
However, Kerry said, "Only George W. Bush could celebrate a record budget deficit of $422 billion, a loss of 1.6 million jobs, and Medicare premiums that are up by a record 17%" (AP/Las Vegas Sun, 9/7).