Bush says his tax cuts drove the '06 budget deficit down

WASHINGTON -- President Bush is crediting his tax cuts for new deficit figures that are far lower than earlier White House estimates, but the red ink is expected to climb again next year, and the longer-term outlook is bleaker.

White House figures released Tuesday estimate that the federal deficit for the 2006 budget year ending Sept. 30 will be $296 billion -- much better than the $423 billion that Bush predicted in February but only a slight improvement over last year's $318 billion.

Impressive corporate profits and big income gains by the wealthy were largely responsible for driving up tax revenues and, in turn, pushing the deficit down. On the other side of the ledger, the Iraq war and Gulf Coast hurricane relief have weighed on the deficit -- as have interest payments paid on the rising national debt.

Bush portrayed the new estimates as validation of a budget policy centered on tax cuts passed in 2001 and 2003 and his clampdown on domestic agencies funded by Congress each year.

"These tax cuts left nearly $1.1 trillion in the hands of American workers and families and small-business owners. And they used this money to help fuel an economic resurgence that's now in its 18th quarter," Bush said. "Economic growth fueled by tax relief has sent our tax revenues soaring."

Democratic critics countered that Bush was celebrating figures that still represent the fourth-largest deficit in U.S. history. The surge in taxes paid by corporations and upper-bracket taxpayers, they added, is proof that the current economic recovery is tilted in favor of the wealthy.

"Let's not boast about a $300 billion deficit," said Senate Minority Leader Harry Reid, D-Nev. "Any statistic you look at recognizes the rich in America are getting richer, the poor are getting poorer and the middle class is getting squeezed."

The White House and most economists say that the most relevant measure of the deficit is to weigh it against the size of the economy. In those terms, the 2006 deficit is 2.3 percent of gross domestic product, a better fiscal performance than 17 of the past 25 years. There were four years of surpluses during those 25 years.

The new projections show the deficit for next year easing back up to $339 billion, reflecting war costs and cautious revenue projections. The White House predicts that it will drop to $188 billion in 2008, but that assumes a sharp slowdown in spending on the Iraq war and that millions of upper middle-income taxpayers won't still be protected from higher alternative minimum taxes.