Bush budget sees red until 2005

WASHINGTON (CNN) -- President Bush's proposed federal budgets factor in sizable deficits for the next three years, including a projected $106 billion shortfall in 2002, the Office of Management and Budget said Wednesday.

Under the White House plan, the federal government would not see an annual surplus -- routine in the last years of the Clinton administration -- until the 2005 fiscal year, when Bush's first term is set to end. Administration officials hope to see a $61 billion surplus that year, OMB Director Mitch Daniels said.

The situation painted by White House officials is particularly bleak for 2002, with the nation fighting to rebuild after September 11, the war on terrorism and a recession. The OMB predicts anemic economic growth of less than 1 percent this year, a major factor in the $106 billion deficit.

This year's budget projections assume Congress passes the $90 billion economic stimulus bill proposed by Bush, which includes a $38 billion boost in defense spending and doubling of spending for homeland security to nearly $30 billion.

The Bush budget includes $54 billion as part of the proposed economic stimulus plan. Leading Democrats are proposing their own stimulus package, at a cost of $69 billion.

Overall discretionary spending, which exempts entitlement spending for programs such as Social Security and Medicare, will grow by as much as 8 percent this year, Daniels said.

"It's going to be very expensive to prosecute a long-term, multi-theater war," Daniels said. He said it was "astonishing" how small the deficit was, considering the state of the economy as well as military, intelligence and law enforcement expenditures after the September 11 attacks.

Bush's top economic advisers predict an economic upswing by year's end, projecting 3.5 percent growth in the fourth quarter of the calendar year 2002. The White House's outlook improves even more in the calendar year 2003, with a 3.8 percent projected growth and an estimated $80 billion federal budget deficit.

By 2004, Bush's budget plan, if passed as is, would produce a $14 billion shortfall, the OMB estimated.