White House budget director Mitch Daniels announced predictions Wednesday that the national budget is unlikely to be balanced until 2005. He attributed the increasing deficits to the slowing economy and the war in Afghanistan.

After running a budget surplus for four consecutive years, many analysts expect the U.S. government to post a deficit in the budget year that began on Oct. 1 because of the Sept. 11 attacks.

“It is regrettably a conclusion that we are unlikely to return to balance in our federal accounts before possibly fiscal 2005,” Daniels said, in a speech at the National Press Club.

Last month Daniels projected a deficit for the current fiscal year 2002 but said the White House expected to return to a surplus budget by 2003, two years earlier than current estimates.

Daniels said the newly declared recession, combined with the demands of spending for the U.S.-led war on terrorism sparked by the attacks and reduced expectations for long-term growth, make a series of deficits likely.

Plans to reduce the deficit call for reducing programs that are not meeting performance standards and redirecting spending to high-priority areas. However, early predictions report the defense budget will not be decreased.

Daniels said he will trim automatic spending in the budget, limiting the flexibility of Congress and the White House. In an effort to combat the predicted deficit, Daniels renewed his call for the U.S. Senate to pass an economic stimulus program, plans Daniels said are essential to promote economic growth and bolster the budget.

UW economics professor Donald Nichols said the main cause of the projected deficit is the slowdown of the economy, greatly influenced by lower tax revenue. Recent statistics show American workers on average are earning lower incomes, and many jobs have been lost. Tax revenue plays a major role in the economy, and the lower revenue is adding to the already sluggish status of the economy. Not only do lower tax revenues injure the economy, Nichols said, the unexpected nature of the drop is significant.

“The lower tax receipts were a surprise on the economy,” Nichols said.

Nichols said the purpose of the economic stimulus package proposed in Congress is to retrieve the United States from the current recession by increasing purchasing power. Nichols added that many skeptics doubt Democrats and Republicans will be able to agree on such a deal, forcing a prolonged recession or delayed response to the situation.

The economic stimulus package may have the potential to rescue the falling economy, but without consensus it appears nothing will be done.
Although predictions about the future status of the economy are running rampant, Nichols said nobody can be certain of the future of the economy. “Projections that far in advance do not pretend to be certain of what will happen.” Nichols said. “Nobody can know for sure.”