The Wall Street Journal
As Deficit Shrinks, Battle Looms
Bush and Democrats Prepare to Face Off on 2008 Budget
By JOHN D. MCKINNON and DEBORAH SOLOMON
July 12, 2007; Page A4
WASHINGTON -- With the government's financial picture brightening somewhat, President Bush is going on the offensive against Democrats over taxes and spending. The battle, which is likely to last the rest of the year, could help determine the direction of fiscal policy for the remainder of his presidency. Yesterday, Mr. Bush seized on the latest White House budget estimates, which predict the 2007 deficit will drop to $205 billion from last year's $248 billion, to press his point that Republican tax cuts and spending policies are working. He charged that Democrats' proposals to raise taxes and expand health care and other domestic programs pose a long-term threat to the country's economic health.
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The actual deficit could be even smaller. The nonpartisan Congressional Budget Office is predicting a 2007 deficit of $172 billion. Rob Portman, director of the Office of Management and Budget, said the deficit reduction was being driven largely by surging corporate profits, which have generated higher-than-expected corporate-tax receipts for the Treasury. He said the deficit could end up below the $205 billion projection and closer to the CBO figure.
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Mr. Bush came to office when the U.S. was enjoying large annual surpluses, but his big tax cuts, a brief recession and war costs quickly combined to produce annual deficits. Democrats sought to downplay the latest good news, focusing on the continued high cost of the Iraq war, the tax breaks Mr. Bush has given to the wealthy and the resulting run-up in federal debt.
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Liberal critics said much of the rhetorical battle concerns a relatively modest increase of about $15 billion in domestic programs that Democrats want from the current $346.6 billion. Mr. Bush wants to cut total domestic spending -- including on labor and education programs the White House views as ineffective -- by about $6.5 billion.
How the face-off plays out could affect policy. Mr. Bush has threatened to veto a number of domestic-spending measures on which Democrats reject his proposed cuts and favor modest increases. He is depicting Democrats' plans to greatly expand a health-care program for low-income children as an excessive middle-class giveaway. Already, some senators are scaling back their proposals for the program, the State Children's Health Insurance Program, apparently in hopes of avoiding -- or attracting enough support to override -- a presidential veto. By challenging Congress on spending, Mr. Bush apparently hopes to energize conservatives who have been disillusioned by the huge increases in government spending he has overseen. Outlays have risen about 59% since 2001.
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