Katrina costs will be borrowed, raise deficit

By Steve Holland

WASHINGTON, Sept 16 (Reuters) - President George W. Bush's advisers said on Friday billions of dollars needed to rebuild New Orleans and the Gulf Coast will be borrowed and will raise the deficit but Bush still wants to extend tax cuts.

The day after Bush proposed one of the world's largest reconstruction projects for the area, White House officials said they were still assessing how much it will cost.

Criticized for a slow federal response to the crisis and trying to restore Americans' confidence in him, Bush told a service at the National Cathedral the hurricane was "beyond any human power to control, but the restoration of broken communities and disrupted lives now rests in our hands."

He said the recovery offers a chance to end poverty generated by decades of racial segregation and will "measure our unity as a people."

"As we clear away the debris of a hurricane, let us also clear away the legacy of inequality," he said at the solemn service, part of a national day of prayer and remembrance for victims of Hurricane Katrina.

The goals Bush has laid out are significant: Rebuilding roads, bridges and schools devastated by Hurricane Katrina and getting the 1 million displaced people back in proper homes.

Some members of the U.S. Congress say it could cost $200 billion, and nobody at the White House was denying the figure, which would exceed the costs of the Iraq war.

"There's no question that the recovery will be paid for by the federal taxpayer and it will add to the deficit," said White House economic adviser Allan Hubbard, while stressing it is a one-time cost.

At the same time, he said, Bush wants to extend tax cuts that were a hallmark of his economic recovery plan but which Democrats would like to end because of the impact on the budget deficit.

"The last thing in the world we even need to be thinking about is raising taxes. A strong economy is what is going to pay for rebuilding the affected areas," Hubbard said.

Continues if you can stomache it...