US Falls Into $159bn Deficit For Fiscal 2002

by Mike Godfrey, Tax-News.com, New York

28 October 2002

The US government announced last week that it ran a budget deficit of $159 billion in fiscal 2002, slightly less than the $165 billion the White House had earlier forecast, and said that next year's deficit is expected to be about $145 billion. In 2001, the government ran a $127 billion surplus and in 2000 it posted a record $236.9 billion surplus.

Officials said a major factor in the deficit was the decline in receipts from capital gains taxes, due to sharp falls in stock markets which caused losses for many investors which they could set against previous profits for tax purposes. Other causes include slower economic growth, increased spending on the military and homeland security after the Sept. 11 attacks, and of course the major $1.3 trillion 10-year tax cut passed in 2001.

With Congressional elections just a week away, Democrats leapt on the figures as proof that President George Bush and Republican politicians have abandoned fiscal discipline in order to fund tax cuts for the rich.

"This is very worrisome for the American people. We are now seeing a swing from the black into the red of $286 billion just since last year,'' said Tom Kahn, Democratic staff director with the House Budget Committee. "This is one more reminder that the Bush budget is broken because it diverts the Social Security trust fund surplus every year for the next decade.''

Budget Director Mitchell Daniels Jr. tried to deflect Democratic criticism, blaming an unexpected fall in tax revenues in 2002, as well as the increased spending resulting from the war against terrorism. "Given these two developments, it is absolutely essential that we set aside business as usual and keep tight control over all other spending," he said.

US Treasury Secretary Paul O'Neill also sounded a confident note, saying: "But going forward, I am confident that we are on the road to recovery and fiscal stability."

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