By Caren Bohan - Analysis
WASHINGTON (Reuters) - Piling up on the desk of the person who will succeed President George W. Bush when he leaves the White House in January 2009 will be higher budget deficits and looming long-term fiscal problems likely to demand immediate attention.
The leading Democratic and Republican candidates in the race for the presidency all have ambitious domestic agendas, including plans to overhaul the U.S. health-care system and change the tax code. The deficits will complicate those plans.
The unveiling of Bush’s budget this week on the eve of the Super Tuesday voting in 24 U.S. states prompted a sharp reaction from the candidates and lawmakers on Capitol Hill.
Amid worries the U.S. economy may be headed for a recession, Bush predicted on Monday that the budget deficit would more than double to $410 billion in the fiscal 2008 year that ends September 30. He also said it would likely remain high next year, coming in at around $407 billion in the fiscal 2009 budget year that begins on October 1.
Deficits in that range would approach the $413 billion shortfall in 2004, an all-time record.
“The next president is going to inherit a mess of historic proportions,” Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said in an interview. “The debt is going up like a scalded cat.”
Democratic candidate Sen. Hillary Clinton of New York said the $3.1 trillion spending blueprint Bush sent to Congress would serve as a reminder of the “legacy of his disastrous fiscal management over the last seven years.”
Her opponent, Democratic Sen. Barack Obama of Illinois, offered similar sentiments, saying the budget was an example of “why we need change in Washington.”
Democrats have long criticized Bush’s fiscal record, blaming the Iraq war and his 2001 and 2003 tax cuts for the shift from surpluses at the end of President Bill Clinton’s administration to the deficits of Bush’s tenure.
Bush has also taken heat from fellow Republican lawmakers frustrated by a run-up in spending on his watch.
Republican presidential candidates Sen. John McCain of Arizona and former Massachusetts Gov. Mitt Romney have both tried to distance themselves from the spending increases seen during Bush’s tenure. McCain has made cutting wasteful government spending a mantra of his campaign.
White House officials say the criticisms ignore the special circumstances Bush faced when he came into office. They note that a recession that began in March 2001 took a toll on revenues and the downturn’s effects were exacerbated by the September 11 attacks that year.
“Well, if all you read was the budget that (Bush) inherited and this budget here today, you probably missed about eight years of pretty important stuff that was going on in the country,” White House budget director Jim Nussle said, defending Bush’s fiscal record at a news briefing.
Nussle listed the Iraq and Afghanistan wars and Hurricane Katrina in 2005 as unique “challenges” Bush has faced.
Administration officials said the Bush tax cuts fueled a surge in corporate profits that boosted revenues. They noted that in the three years through 2007, the deficit declined.
While near-term deficits are a concern, many budget experts are bracing for much more serious fiscal problems in coming years as the baby boom generation’s retirement causes spending on health care and other entitlements to explode.
Conrad said the nation was less equipped to deal with those problems because of the national debt, which was expected to reach around $10 trillion by the time Bush leaves office -- close to double the $5.6 trillion level of 2001.
Interest payments on the debt have ballooned above $200 billion a year, making them one of the fastest growing parts of the budget and rivaling the Iraq war in their annual cost.
Also of concern to lawmakers is the potential that the near-term fiscal picture could be even worse than the scenario laid out in Bush’s budget.
They noted that underlying the budget are upbeat assumptions about U.S. economic growth this year. The White House has predicted the economy would grow by 2.7 percent this year, well above the predictions of the Blue Chip panel of private forecasters, which estimated growth at 2.2 percent.
Budget analysts also say that the figures in the Bush budget understate the deficit because they only included a partial request for the costs of the Iraq and Afghanistan wars in 2009. The administration asked for $70 billion for those wars for next year. That is a fraction of the $193 billion Bush said would be needed in 2008.
Nussle said the administration would request some more money for Iraq later in the year but he added that Bush wanted to let the next president “take possibly a fresh look at what’s happening, both in terms of strategy and tactics, as well as the amount in the budget.”
(Additional reporting by Richard Cowan)
Editing by Eric Beech