September 8, 2004

• Congress Returns from August Recess for Home Stretch
• Congressional Budget Office Projects FY2004 $422 Billion Federal Deficit

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Congress Returns from August Recess for Home Stretch

The 108th Congress returned from its six-week recess to try to complete as much work as possible before it recesses again on October 8, not to return again, in a lame duck session, after the November 2 general election.

While Medicare prescription drug reform, extension of the 2001 and 2003 tax cuts, the thirteen FY2005 appropriations bills, and the massive reauthorizations of the Energy and Transportation agencies are the major agenda items, the big issue now has become passing legislation to implement the 911 Commission recommendations.

The Reauthorization of the Higher Education Act is not on this Congress' agenda.

Congress is giving itself a month to come up with legislation to restructure the nation's intelligence apparatus, but Republican leaders acknowledge the goal may fall victim to turf disputes and lawmakers' focus on getting themselves re-elected November 2nd.

While a group of members in both parties have united behind legislation to enact the Sept. 11 commission's recommendations unaltered, House Speaker Dennis Hastert and key Senate committee chairmen are warning against a rush to judgment.

Senate Intelligence Committee Chairman Pat Roberts, R-Kansas, has a different perspective. Citing a series of intelligence failures, he unveiled a bill last month that would break up the CIA and rearrange the Pentagon's intelligence agencies under a single national intelligence director.

Yet to be heard from are senior members of the appropriations committees, including Senate leaders like Republican Chairman Ted Stevens of Alaska and Robert C. Byrd of West Virginia, the top Democrat on the panel. The September 11 commission recommended that the budget authority for intelligence agencies be taken away from them and given to a new committee that would oversee both Pentagon and civilian spy programs, and divvy up the money for them.

Senate Majority Leader Bill Frist, R-Tennessee, originally assigned the Senate Governmental Affairs Committee to get a bill completed by September 30. The panel held several hearings in August and has another planned September 8.

When squabbling arose, Frist and Minority Leader Tom Daschle, D-South Dakota, quickly named a 20-member bipartisan working group made up of Warner, Roberts, Stevens, Byrd and other senior lawmakers who now have a share of intelligence oversight.

With Congress scheduled to break again October 8 until after the election, pressure will be on for leaders to call a lame-duck session that could run until Christmas to complete the intelligence overhaul and a corporate tax bill.

Two weeks ago, President Bush addressed some of the September 11 commission's recommendations. He signed executive orders strengthening the CIA director's control over intelligence agencies and creating a national counterterrorism center.

A White House official described Bush's actions as a step toward creating the position of a national intelligence director, a job separate from the director of the CIA. The official stopped short of endorsing full budget authority for the proposed position, saying that must be worked on with Congress, which has the power to decide whether to create the new position and what authority the person who fills the job will carry.

Democratic presidential candidate John Kerry has called for adopting all the commission's recommendations and doing it immediately. Democrats maintain the issues are not new or unfamiliar, saying a joint House-Senate intelligence inquiry came out with much the same conclusions two years ago.

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Congressional Budget Office Projects FY2004 $422 Billion Federal Deficit

The nonpartisan Congressional Budget Office (CBO) is estimating that this election-year's federal deficit will reach $422 billion, the highest ever, yet a smaller shortfall than analysts predicted earlier this year, and a $2.3 trillion federal debt over the period 2005-2014.

The figures are sure to engender debate between both parties during the remaining two months of the presidential and congressional campaigns, with Democrats proclaiming that this is by far the biggest deficit in American history, and Republicans taking the position that deficits are going down, jobs are going up, and the economy continues to improve.

There are three basic caveats to the estimates:

1. The estimates assume that current laws will remain in effect, e.g., the 2001 and 2003 tax cuts will expire on schedule.
2. The estimates assume that discretionary spending by the congress will grow no more than the annual rate of inflation.
3. The $422 billion includes the off-budget surpluses in the Social Security Trust Funds and revenues generated by the Postal Service. Deducting these amounts, the total FY2004 deficit is $574 billion, and the total national debt for 2005-2014 is 4.7 trillion.

Numbers 1 and 2 are not expected to happen.

The $422 billion would surpass last year's $375 billion shortfall, the current record. The CBO report also said next year's deficit would shrink to $348 billion, which would be the third largest ever in dollar terms. That would be $15 billion less than it projected last March, but $17 billion higher than the White House estimated in July.

When adjusted to erase the effects of inflation, the projected $422 billion deficit projected for 2004 would exceed the value of every annual shortfall since World War II.

The CBO estimate should prove fairly accurate because the federal budget year, which runs through September 30, has less than one month to go. But it does not include the $3 billion in aid for repairing hurricane damage in Florida or the $115 billion for the Iraq and Afghanistan military operations.

The government is expected to spend about $2.3 trillion this year, which means it will be borrowing about one of every five dollars it spends.

The $422 billion projection for 2004 echoed a preliminary estimate the budget office made last month. It was an improvement from its $477 billion forecast in January, a revision the office attributed mostly to stronger-than-anticipated revenue collections.

Just last month, the White House forecast a $445 billion deficit for this year, though administration officials acknowledged the figure could be too high because of overestimates for spending.

As a percent of the Gross Domestic Product (GDP), the $422 billion is 3.6 percent of the GDP in 2004, estimated to drop to 2.8 percent in 2005, and to 1.9 percent in 2010. The average percentage over the past 20 years is 3.5 percent, which includes budget surpluses for 1998-2001 that averaged 1.4 percent of the GDP.

Whatever the short-term deficits, most analysts agree the budget picture will worsen considerably within the coming decade. That is when the huge baby boom generation will begin relying increasingly on Social Security and Medicare, driving those programs' costs upward.

For the immediate future, domestic, non-defense program funds through discretionary appropriation — which concerns about 20 percent of the $2.5 trillion annual budget that includes student financial aid and the student loan programs — will face potentially significant spending freezes or reductions.

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For more information, contact:

TG Congressional and Legislative Relations
(512) 219-4503
P.O. Box 83100
Round Rock, TX 78683-3100