'The deficit is under control'

The massive U.S. budget deficit is projected to shrink even in the face of substantial expenditures caused by Hurricane Katrina, according to Randal Quarles, undersecretary of domestic finance for the U.S. Treasury Department.

Quarles, a Utah native, was in Salt Lake City Friday speaking about President Bush's economic agenda.

The U.S. budget deficit is projected to reach a record $423 billion this year, up from $319 billion in 2005. But Quarles said that since 2004 the Bush administration has been executing a plan to cut the deficit in half.

"The deficit is under control," Quarles said in an interview with the Deseret Morning News. "In fact, we are ahead of schedule. The deficit was a little bit over 4 percent of GDP when we articulated that goal. It has shrunk now so that if we stay on the glide path that we have been performing on it will be about 1.4 percent of GDP in 2009. That's much more than cutting it in half."

Quarles added that it was not in anyone's interest to shrink the budget deficit immediately.

"We needed to show that we could bring this down in a controlled, measured way so that those who finance the country, domestically and internationally, when they look at the financial situation they say, 'These people have got it under control,' " Quarles said. "The U.S. is not in any sort of a fiscal crisis yet. And as long as we can show that we are bringing that deficit down, then people making decisions about financing the United States ought to be very confident."

The budget deficit recently has come under intense debate. Federal Reserve Chairman Ben Bernanke has warned that widening the deficit could put future living standards at risk.

Peter Morici, a business professor at the University of Maryland, said the administration's budget deficit projections are optimistic.

"Republicans have demonstrated over and over again they cannot resist the urge to spend more money," Morici said. "While George Bush may have campaigned on a platform of fiscal restraint, he's as big a spender as any Democrat I've ever seen."

Quarles said the 2005 budget deficit was nearly $100 billion less than expected due to strong economic growth and total tax revenues.

"Total tax revenue over the course of fiscal year '05 was 15 percent higher than it had been the year before, which is the largest percentage increase in revenue in a single year in the history of the country," Quarles said. "We have very strong revenue performance into the Treasury."

Morici did agree that budget deficits can help employment in the short term.

"However, it has negative effects in that it encourages a larger trade deficit, and that tends to shift Americans out of things like manufacturing and high-value services," Morici said. "It tends to shift people out of exporting industries and industries that compete with imports into low-wage jobs. And government jobs don't add a whole lot to productivity. If you want to find an absence of innovation and productivity growth, visit your local government office."

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