President Bush to project lower U.S. budget deficit

WASHINGTON, July 11 (Reuters) The White House today is expected to project a US budget deficit for this year of just over 200 billion dollars, down from prior estimates because of strong tax receipts, Republican sources said.

A deficit for fiscal 2007 in that range would mark a decline from the 248 billion dollars gap recorded last year. The fresh estimate will be unveiled at 2230 hrs IST in the administration's ''midsession review'' of the budget.

When President George W Bush sent Congress his annual budget in February, he forecast that this year's deficit would decrease only slightly to 244 billion dollars.

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

Republican sources, who spoke on condition of anonymity, said they had been told the projection would be for a deficit around 40 billion dollars lower than last year's.

Although a 200 billion dollars deficit would mark an improvement from last year, it is above the estimates of many private forecasters that are closer to the 150 billion dollars range for 2007.

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

Struggling with growing criticism -- even from within his own Republic Party over his Iraq policy -- 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, though Democrats have labeled Bush's tax-cutting policies fiscally reckless.

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.

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 federal government would be enjoying a budget 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 spending plan for fiscal year 2008 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 that limit.

Reuters RSA DB0958