White House Denies Shelving $44 Trillion Budget Deficit Warning

Yahoo News Reuters -- The administration was responding to a front-page report in Thursday's Financial Times saying the White House kept the findings out of its annual budget blueprint in February while it prepared to lobby for a new round of tax cuts. Bush signed $350 billion in tax cuts into law on Wednesday.

The newspaper also said the study was commissioned by ex-Treasury Secretary Paul O'Neill and written by Jagadeesh Gokhale, a senior economic advisor with the Federal Reserve Bank of Cleveland and Kent Smetters, a former Treasury deputy assistant secretary for policy coordination.

Treasury spokesman Rob Nichols denied that, though. "This paper was not prepared at Treasury, by Treasury, or at the request of anyone at Treasury," he said. (Big Lie - EL)

However, in testimony before a House of Representatives subcommittee in March, Smetters, with the Wharton School at the University of Pennsylvania, said: "These estimates were made with a detailed model developed by Jagadeesh Gokhale and myself during our time in the Bush administration."

While the paper has been circulating among academic and budget circles for some time, it gained wider notice earlier this month when well-known economists Laurence Kotlikoff and Jeffrey Sachs wrote in a column in the Boston Globe that it had been "yanked from the budget."

The authors use a measure they call fiscal imbalance, which adds federal debt held by the public and the current value of all future federal spending minus the current value of all future revenues. Sustainable policies, they say, would have an imbalance of zero.

But largely because of Social Security and Medicare obligations, the imbalance was calculated at $44.2 trillion -- astronomical even by the standards of U.S. federal government accounting. For this fiscal year, the government's cash shortfall is widely expected to be more than $300 billion while accumulated debt from previous budget deficits stands at around $6.4 trillion.