Bush sees US deficit falling to 205 billion

WASHINGTON, July 11 (Reuters) President George W Bush will estimate that the US budget deficit for fiscal year 2007 will come in at 205 billion dollars, a drop from last year, US administration officials said today.

The deficit was 248 billion dollars last year. The fresh estimate in the White House ''midsession review'' revises the 2007 forecast downward from the February estimate that put it at 244 billion dollars.

Democrats said the improvement in the annual deficit did not change the fact that Bush, who inherited a budget surplus when he came into office in 2001, has seen a sharp rise in accumulated debt on his watch.

The new figure is still higher than private forecasts, which pegged the deficit at around 150 billion dollars.

US officials confirmed the number on condition of anonymity to avoid upstaging Bush, who is scheduled to unveil the numbers at 2230 hrs today.

Robust tax collections this spring, bolstered by bigger paychecks for individuals and capital gains from a strong stock market, have brought down deficits, even as the Iraq war has contributed to hefty spending increases in recent years.

Struggling with rising criticism over Iraq -- including from within his own Republican Party -- Bush is eager to tout what he views as a success on the domestic side.

He contends his 2001 and 2003 tax cuts have set the stage for a better fiscal picture by spurring economic growth, although Democrats have labeled Bush's tax-cutting policies fiscally reckless.

'KEPT YOUR TAXES LOW' In a speech in Cleveland yesterday, Bush said the deficit would be ''substantially lower than it was three years ago.'' ''We kept your taxes low, which caused the economy to grow, which yielded more tax revenues. And because we set priorities, the deficit is shrinking,'' he said.

But Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, accused Bush of having a ''failed fiscal record.'' ''He has increased spending by nearly 50 per cent since taking office, while at the same time repeatedly cutting taxes primarily on the wealthiest,'' Conrad said. ''Debt has exploded on his watch -- rising from 5.8 trillion dollars in 2001 to approximately 9 trillion dollars by the end of this year.'' Jim Horney, an analyst at the liberal Center for Budget and Policy Priorities in Washington, said the lower deficit was simply a result of a normal economic expansion, adding that without the tax cuts, the budget would be in surplus.

''This is what happens in an expansion. The deficit goes down some,'' he said.

As Bush prepares to unveil the budget estimate, a big battle is looming between the White House and the Democratic-led Congress over domestic spending.

Democrats have sketched out a discretionary spending plan for fiscal year 2008, which starts on October 1, that exceeds by around 22 billion dollars the 933 billion dollars Bush has requested. The president has said he will use his veto to enforce his limit.

In early June, the nonpartisan Congressional Budget Office estimated the fiscal 2007 deficit would come in between 150 billion dollars and 200 billion dollars.

REUTERS SBC VV2116