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White House, Democrats differ on deficits

By CNN White House Correspondent Kelly Wallace and Capitol Hill Producer Dana Bash

WASHINGTON (CNN) -- The scope of the economic policy rivalry between congressional Democrats and the White House broadened Thursday, with each side offering differing accounts on why the federal government may be facing at least three years of budget deficits.

One day after the White House announced that the government would be in the red until at least 2005, Democrats placed the blame for the return of federal deficits on the $1.35-trillion tax cut President Bush signed into law earlier this year.

"The reason why we're facing that deficit is because of the tax cut, so I hope that no one will be misled or in any way fooled by this notion that somehow it's the downturn of the economy or it's the war on terrorism," Senate Majority Leader Tom Daschle, D-South Dakota, said during his morning briefing with reporters.

The White House, meanwhile, responded that this year's numbers don't support that assertion, saying instead that a combination of harsh fiscal factors has dried up the government's surplus accounts.

"The tax cut this year (amounted to) $40 billion," said White House spokesman Ari Fleischer. "The tax cut had nothing to do with the drop in the surplus. The surplus dropped by $154 billion, indicated something else was going on. That something else we all know was the recession."

The duration of this new period of deficits, Fleischer said, will be determined by how the economy recovers in the course of the next six to 12 months.

A senior Bush adviser offered this assessment: "The slowing of the economy had two times the effect of the tax cut on the surplus."

"Federal spending had twice the effect of the tax cut on the surplus," the official said, surmising that spending and the economic slowdown had "four times" the impact of the tax cut on the federal surpluses.

White House aides also argued that the tax cut is "back-loaded," and therefore the biggest cost to the federal government will be in the last five years, not in the next couple of years.

Daschle, for his part, contended that the administration's new projections prove what Democrats argued back in the spring, that the tax cut was too large and the federal government could not afford it.

"I'd love to be able to say I told you so," said Daschle. "I'd love to be able to say those four words and get full credit for the fact that we did.

"So I thank the director of the OMB (Office of Management and Budget) for confirming what we said last spring, but it doesn't make the fact that we were right feel any better."

In a speech Wednesday at the National Press Club, Mitch Daniels, White House budget director, presented the gloomiest economic forecast yet by the administration, predicting the federal government will return to deficits this year and remain in deficit territory until possibly 2005.

Aides cited a "convergence" of factors for the new forecast, including the new spending and economic effects associated with the September 11 attacks, and assessments that the country is now in a recession.

"Adding these factors together, it is regrettably my conclusion that we are unlikely to return to balance in the federal accounts before possibly fiscal '05. That is, in the next two years things will have to break right for us to do that," Daniels said Wednesday.

Aides said Daniels' remarks were in part designed to reflect the current economic situation but also to send a message to lawmakers about additional federal spending as Congress finishes up work on the last spending bills for fiscal 2002, and a stimulus measure to give a boost to the economy.

"We really need to be careful and show caution," said one administration official. "The decisions we make now are really going to have a big impact on long-term fiscal health. Everyone needs to be mindful of that."

Another senior adviser said, "We know the history. ... Congress spends money to get out of town. We are not doing things the way they used to."

Bush has said he will veto any additional spending above the $40 billion emergency supplement he signed into law to deal with the attacks, and above the $686 billion he has advocated for domestic discretionary spending.

The president is also pushing for an economic package, consisting mainly of tax cuts, as the best way to stimulate the economy. That measure is held up in the Senate -- the House has already passed its version of the bill.

"It's obvious that the economy is still very shaky," said an administration official. "The best way to ensure future surpluses is to make sure the economy is strong."

Part of making the economy strong, Fleischer argued, rests in getting the Senate stimulus bill unstuck.

"In the absence of a stimulus package, there is a strong possibility, according to forecasters, that the economy will only come back with low- to moderate-growth, " he said. "The president wants to see strong growth."

"The president is troubled by the fact the economy has slowed down, the president is troubled that we are in recession," Fleischer added. "The president will be more troubled if the Senate doesn't do anything about it."

-- CNN's Ian Christopher McCaleb contributed to this report.


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