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updated 10/11/2007 12:48:19 PM ET 2007-10-11T16:48:19

The Bush administration reported Thursday that the federal budget deficit fell to $162.8 billion in the just-completed budget year, the lowest amount of red ink in five years.

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The administration credited the president's tax cuts for helping generate record-breaking revenues but warned of an approaching "fiscal train wreck" unless Congress deals with unsustainable growth in Social Security, Medicare and Medicaid.

The deficit for the 2007 budget year that ended on Sept. 30 was 34.4 percent lower than the $248.2 billion deficit recorded in 2006, reflecting faster growth in revenues than in government spending.

Administration officials said the new figures showed the government was on track to accomplish President Bush's goal of eliminating the deficit by 2012. But Democrats said the improvement in the deficit this year did not mask the fact that Bush's economic policies transformed the budget surpluses of the Clinton years into record deficits and an unprecedented increase in the national debt.

Permanent tax cuts?
The debate over the president's signature tax cuts and their affect the economy are certain to be played out in the coming presidential campaign. Republican candidates are vowing to make permanent Bush's tax cuts, which are due to expire at the end of 2010; Democrats want to roll back the tax cuts received by the wealthiest taxpayers.

"This year's budget results further demonstrate how the president's tax relief, combined with spending discipline, has helped promote a sustained economic expansion, which led to revenue growth and resulted in a declining deficit," said White House budget director Jim Nussle.

But administration officials said while the short-term budget deficit was improving, greater efforts were needed to deal with the budgetary pressures that will arise in future years with the approaching retirement of 78 million baby boomers.

"For the sake of our children and grandchildren, Congress should begin to take action to prevent this fiscal train wreck," Nussle said in a statement accompanying the budget figures.

Fiscal irresponsibility
Senate Budget Committee Chairman Kent Conrad, D-N.D., said that Bush would "go down in history as the most fiscally irresponsible president ever. The fact is that the nation's debt has exploded on his watch - rising by $3 trillion since 2001, to $9 trillion today."

Bush recently signed into law a measure increasing the government's borrowing ceiling to $9.815 trillion. It was the fifth debt increase of Bush's presidency. The national debt is the accumulation of the annual deficits.

During the Clinton administration, the federal budget ran a surplus for four consecutive years, something that had not been accomplished for seven decades.

While there were projections that the budget would run up surpluses of $5.6 trillion over the next decade, the bursting of the stock market bubble in 2000, the recession that followed in 2001 and the terrorist attacks, which led to increased military spending to fight wars in Afghanistan and Iraq, pushed the country back into deficit spending.

While the administration contends that Bush's first-term tax cuts helped jump-start economic growth and are contributing to record revenues currently, Democrats dispute that view, saying the tax breaks were too tilted to the wealthy and actually have contributed to the record deficits.

The deficit hit an all-time high in dollar terms of $413 billion in 2004 and has been coming down since. It fell to $319 billion in 2005 and $248.2 billion last year.

The Congressional Budget Office projects that the deficit will improve further in the 2008 budget year, which began on Oct. 1, projecting a decline to $155 billion before the imbalance starts to rise again in 2009.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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