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Budget Deficit Hits Record High
Subject Budget Deficit
Topic Taxes, Spending, and Deficits
Key Words Budget Deficit, Government Spending, and Taxes
News Story

The Bush Administration has posted a $374 billion budget deficit for fiscal year 2003. This amount is the largest ever in absolute dollar terms and twice that of last year's budget deficit. Even though high, the most recently revised numbers are actually better than analysts expected as recently as last summer. The economy has shown some growth, and tax revenues have been greater than expected. Government spending has also been lower than expected, contributing to the modestly improved budget deficit numbers.

Based on a statement by Josh Bolten, Director of the Office of Management and Budget, the budget deficit is likely to continue growing over the next year, despite expected improvements in the economy. Bolten said in a statement that the fiscal year 2004 budget deficit would likely reach the $500 billion mark. He did, however, repeat the administration's view that "we can put the deficit on a reasonable downward path if we continue pro-growth economic policies and exercise responsible (government) spending restraint."

During the first three years of the Bush administration, the projected $5.6 trillion 10-year surplus has turned into the current budget deficit. The turnaround has come as a result of increased military spending for the war effort, increased spending on homeland security and terrorism, a generally weak economy, and the revenue loss associated with the administration's tax cuts.

These developments have brought harsh criticism from the democrats. "There is no good news with respect to the coming years," said Representative John Spratt of South Carolina, the ranking Democrat on the House Budget Committee. "The administration's tax cuts and budget policies have not created the promised new jobs over the last three years, but they have created huge deficits that will stifle future growth and burden our children and grandchildren with debt."

(Updated November, 2003)

Questions
1.

Define a budget deficit. Does such a huge budget deficit mean that the U.S. might go bankrupt?

2. Find the fiscal year 2003 GDP and compute the budget deficit as a percent of GDP.
3. What fiscal policy action would you suggest to improve the deficit?
Source Deborah Lagomarsino and John D. McKinnon, "Budget Deficit Doubles Level Hit In Previous Year," The Wall Street Journal, October 21, 2003.

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