Bush predicts U.S. budget deficit will shrink

By Caren Bohan and Joanne Morrison

WASHINGTON (Reuters) - President George W. Bush predicted on Wednesday that strong tax receipts would cause the U.S. budget deficit to shrink to $205 billion this year, marking the third straight annual decline.

As he struggles with record-low approval ratings and criticism over the Iraq war, Bush was eager to tout what he viewed as a success for his domestic record and credited his tax cuts with reducing the budget gap.

But Democrats said the improvement in the annual deficit did not change the fact that Bush, who inherited a budget surplus when he came into office in 2001, has seen a sharp rise in accumulated debt on his watch.

The deficit hit an all-time high in 2004, in the middle of Bush's term, of $413 billion.

"A growing economy has led to growing tax revenues. Because people are making more money, they are also paying more taxes. The pie is growing," Bush told reporters at the White House.

But Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, accused Bush of having a "failed fiscal record."

"He has increased spending by nearly 50 percent since taking office, while at the same time repeatedly cutting taxes primarily on the wealthiest," Conrad said. "Debt has exploded on his watch -- rising from $5.8 trillion in 2001 to approximately $9 trillion by the end of this year."

The deficit forecast for fiscal year 2007, released in the administration's mid-year report on the budget, would mark an 18 percent decrease from last year's $248 billion.