NEW YORK (CNN/Money) -
In a report released Tuesday, the Congressional Budget Office (CBO) revised its projection for the country's budgetary shortfalls, lowering its previous forecast for fiscal years 2004 and 2005 but raising its estimates for cumulative 10-year deficits by $281 billion.
Under current laws and policies, the projected 10-year deficit is expected to total $2.28 trillion, or 1.5 percent of the estimated 10-year combined gross domestic product (GDP), up from a March projection of $2 trillion.
CBO Director Douglas Holtz-Eaking said in a press conference Tuesday morning that the upward revision is due mainly to military expenditures for Iraq and Afghanistan that were not included in the March analysis.
The report noted the deficit for fiscal 2004 will come in at $422 billion, down from the $477 billion projected in March. Although a record level in dollar terms, the number represents 3.6 percent of the nation's GPD. In the 1980s and early 1990s, the nation often ran deficits of 4 percent of GPD or greater, according to the report.
The following 2005 fiscal year, the deficit is expected to ease to 348 billion, or 2.8 percent of GDP, and it is predicted to continue to exceed revenues until 2014.
Chad Kolton, a spokesman at the White House's Office of Management and Budget, said the lower numbers for 2004 and 2005 are evidence that the president's tax cut is working. He also said Bush's current deficit-reduction plan will erode those numbers even further.
"If we continue with these pro-growth policies, we'll be able to cut the deficit in half in five years," said Kolton.
But Bush's presidential challenger, Sen. John Kerry, said the 2004 numbers are still too high.
"Only George W. Bush could celebrate over a record budget deficit of $422 billion," Kerry said in a press release, adding that he also had a plan to halve the deficit in four years.
The Congressional Budget Office forecasts future government spending based on current laws and policies and future government revenue based on the growth or reduction in GPD.
For the 2004 calendar year, the budget office forecasts a GDP growth rate of 4.5 percent and a 4.1 percent growth rate for 2005. Beyond that, the agency estimates GDP will grow by an average 2.8 percent each year until 2014.
Absent legislative tinkering, the report forecasts a declining deficit for each year after 2006. It says that by 2011, if Bush's tax cuts of 2001 expire as planned, the annual budget should be "relatively close to balanced."
But echoing the recent concerns of Federal Reserve Chairman Alan Greenspan, the CBO says that even if the economy grows faster than projected, significant long-term strains on the budget will start to intensify within the next decade as the baby-boom generation reaches retirement age.
"This is a fiscal situation in which we cannot rely on economic growth to cause deficits to disappear," CBO's Holtz-Eakin said at the agency's press conference earlier today. "Instead, the central path of the budgetary outlook will be dictated by policy choices."