The Congressional Budget Office (CBO) has issued its latest report on the FY 2002 budget deficit, which is now expected to reach up to $100 billion.

The Congressional Budget Office (CBO) has issued its latest report on the FY 2002 budget deficit, which is now expected to reach up to $100 billion.

In introducing the President’s FY 2003 budget request, Office of Management and Budget Director Mitch Daniels had warned that this year would be awash in tough spending choices, and CBO’s recent projections provides even stronger ammunition for those who aim to "bring fiscal discipline" to the federal budget at the expense of a whole host of small, but important federal programs. But is trading a handful of relatively small federal programs for a handful of other small programs really the solution to our projected $100 billion budget deficit woes? (To help orient yourself in the world of federal budget numbers, consider this: the two loan programs mentioned here comprise approximately 5% of the Department of Education’s annual budget of $50 billion; by comparison, repealing the estate tax for one year would cost $55 billion and the cost of providing the Home Mortgage deduction to home owners comes to $100 billion each year.)

In ordinary budget crunches, such tough choices would certainly be necessary, but we are not in an ordinary budget deficit. Again, for purposes of orientation, it may be useful to note that this projected $100 billion deficit is only 1% of GDP. In previous deficit years, the size of the deficit relative to GDP was much higher:

And approximately 40% of this year’s deficit is due to last year’s slowdown of the economy, which most economists are predicting is now on its way to a full recovery. In the meantime, the prevailing school of economic thought urges deficit spending under these slowed economic conditions. (Indeed, in its most recent economic report, the Bureau of Economic Analysis (BEA) attributed 1.4 percentage points of its estimated 5.8-point annual rate of growth in GDP to the recent increases in government spending.)

The other factor that distinguishes this year’s deficit from previous deficits is the substantial role last year’s $1.35 trillion tax cut plays in it. Another 40% of this year’s deficit is due to last year’s massive tax cut – and the size of the tax cut’s contribution to the budget shortfall increases over the next 10 years. A recent Center on Budget and Policy Priorities (CBPP) analysis shows that freezing the tax cuts at their current level would free up $500 billion for the federal government over the next 10 years, rendering such "tough choices" far less necessary.