U.S. Budget Deficit Tumbles, Congressional Analysts Say

AP ^ | Jul 7, 2005 | Andrew Taylor

[Skylab]

U.S. Budget Deficit Tumbles, Congressional Analysts Say

By Andrew Taylor Associated Press Writer Published: Jul 7, 2005

WASHINGTON (AP) - Higher-than-expected tax receipts and the steadily growing economy have combined to produce an improved picture for the federal budget deficit, congressional analysts say.

The deficit for the current budget year, which runs through Sept. 30, should be "significantly less than $350 billion, perhaps below $325 billion," according to the Congressional Budget Office. The agency produces nonpartisan estimates for Congress and will put out a full update Aug. 15.

Thursday's new figures come as the White House is to release its midyear budget review July 13. Administration figures are also expected to show significant improvement from the $427 billion current-year deficit it predicted in January.

Last year's $412 billion deficit was a record in dollar terms, but economists say the more significant measure is against the size of the economy. In those terms, the current deficit picture - a $350 billion deficit for this year would equal 2.9 percent of gross domestic product - is significantly better than deficits witnessed in the mid-1980s and early 1990s. Then, deficits of 4 percent to 6 percent of GDP were common.

The biggest factors for the improving deficit picture are higher tax receipts from corporations and individuals. The economy is performing slightly above earlier administration expectations. Despite the improvement projected over the short term, neither the CBO nor the administration's Office of Management and Budget is expected to dramatically overhaul its long-term deficit projections, which show a steady decline in the level of red ink through the end of the decade but anticipate a spike in the deficit soon thereafter as the baby boom generation claims its retirement benefits.

"This is good, but let's try to figure out if there's anything permanent here," said CBO Director Douglas Holtz-Eakin.

Still, the new numbers will make it easier for the White House to credibly claim it will meet its goal of cutting the deficit in half - from the $521 billion it originally predicted for fiscal 2004 - by the time President Bush leaves office. Budget watchdog groups like the bipartisan Concord Coalition say White House budget projections are suspect since they leave out long-term costs for the war in Iraq and other factors.

"The numbers are coming out better," said White House budget director Joshua B. Bolten in an interview last month. "We had projected a very steady path of decline of the deficit, especially as a percentage of GDP, which is the right way to judge it. Right now, we're doing better than hitting that target. They'll be better because we've gotten better revenues than we originally projected."

As it addresses the deficit, the White House has focused chiefly on clamping down on domestic programs whose budgets are appropriated every year by Congress. That's only about one-sixth of the overall budget, however. Congress is also planning a five-year, $35 billion cut from automatically budgeted programs such as Medicaid and farm subsidies.

"The long-term budget issues are the mandatory programs - Social Security, Medicare, Medicaid. Everything else is dwarfed by that," Holtz-Eakin said. He added that the current improvement in the deficit picture "looks like a pittance" when compared with the long-term liabilities.

AP-ES-07-07-05 1754EDT

[Charles H. (The_r0nin)]

Why, because you say so? Provide evidence for your assertion.

[Altair333]

The budget deficit we have now is not inordinately high as a percentage of GDP. Having said that, it would be a mistake to get some comforting notion that no matter how much we cut taxes, we'll never run into trouble with deficits because the economy will bail us out. If the housing market collapses, for example, tax receipts are going to plummet and the deficit will soar.

I also have a problem with how we're financing the debt we have. It's largely with treasury bonds sold to the Chinese instead of bonds sold to the American people as was formerly the case in our history. China is keeping our long-term interest rates low and thus feeding our housing boom, but at a price. By holding so many of our bonds, China has great economic leverage over us. If they wake up tomorrow and sell our bonds, then long-term interest rates are going to skyrocket, along with inflation. So long housing boom, so long economy.

We'd be in a lot more stable position economically if we didn't have this debt. That's simply a fact.

[TBall]

BS we lowered taxes. How in the hell can we have higher receipts if the taxes were lowered?

[Moonman62]

I read about this a week or two ago and was wondering why the MSM weren't reporting this good economic news.

It's only partly good. The deficit should be going down because of decreases in spending, not increases in tax revenues.

[aquila48]

a $350 billion deficit for this year would equal 2.9 percent of gross domestic product...

Very interesting. The europeans by law have to keep their deficit below 3% of GDP and France and Germany have been running 4 or 5% ever since it went into effect. And they say that the US should put its house in order??

[foofoopowder]

I'll assume your question is serious, and the answer is:
because the private sector used the tax savings to invest in businesses, create new jobs, and buy goods and services, resulting in more taxable profits. It's called capitalism.

[TBall]

Like maybe their might be an optimum tax rate for for maximum revenue that is even lower than the current rate?

[fooman]

right. Everyone downplays econ growth which works like coumpound interest.

The euros are in much worse shape, so thier long term rates are higher.

[expat_panama]

The deficit should be going down because of decreases in spending, not increases in tax revenues.

Taxes are costs (to us taxpayers) so lower taxes are better.  Deficits are only bad if they get so bad that we can't keep the government going (we need the government to keep going so we don't have anarchy).  Therefore, we need to lower the deficit by cutting spending and getting along with the smallest government we can get by on.

BUT, we can also manage the gov't and the deficit by growing the economy and our wealth faster than the deficit.   The deficit can grow as fast as it wants, as big as it wants, so long as we get richer even faster.  Over the past 10 years the deficit has gone from 16 percent of total family wealth to only 12 percent.  That's good.  We can do that forever.

I'm tellin' ya guys, it don't matter if the debt goes up to a $100 trillion; if my personal family's wealth goes up to say, $200 trillion, I promise to pay it off myself as a philanthropic gesture.

Your welcome.

[Moonman62]

Deficits are only bad if they get so bad that we can't keep the government going (we need the government to keep going so we don't have anarchy).

Deficits are bad if the spending creating them is unethical, or if the money could have been better used somewhere else. You've made your point on the financial side of it.

[Hank Rearden]

The biggest factors for the improving deficit picture are higher tax receipts from corporations and individuals.

So, everything's just dandy because Big Stupid Government is stealing even more money from Americans than expected (but still can't stay within even a $2.57 TRILLION budget).

Screw these parasites; strangle the cashflow because they will not respect limits on Big Stupid Government intrusion and waste.

[Hank Rearden]

Hmmm, tax cuts equal higher revenues? Shocked, shocked i tell you!

What "tax cuts"?

Without corresponding spending cuts, the phony "tax cuts" are simply deficits - deferred taxes to be paid later, with lots of interest piled on. Thus, an even more gigantic federal debt.

[Diana in Wisconsin]

"Screw these parasites; strangle the cashflow because they will not respect limits on Big Stupid Government intrusion and waste."

I agree wholeheartedly. Thwarting the Tax Man by any means necessary is my, shall we say, "hobby." And let's also say I stay on THIS side of what's legal, of course!

If the average schmuck would just sit down with paper and stubby pencil and get real about their income and out-go, tax base break even point, learn of the many, many ways to lower taxable income through LEGAL means (starting a home-based business, being more charitable (for the good it does your soul & the tax-write-offs) and what they can do to end the madness, an army of a few hundred million EDUCATED citizens COULD "strangle that cashflow."

But, that ain't never gonna happen, so I'll just stay under the radar for now and quietly *snicker* to myself when I read of government fraud, waste and abuse; because little of it is my hard-earned money. ;)

[Diana in Wisconsin]

Good catch! And from the AP, no less. :)

[hinckley buzzard]

China has great economic leverage over us. If they wake up tomorrow and sell our bonds, then long-term interest rates are going to skyrocket,

If China "wakes up tomorrow and sells our bonds" that will mean they have found a buyer for said bonds at a given interest rate. How that will make interest rates and inflation in the US skyrocket is beyond me. It also begs the question, now that China has sold those bonds, where do they invest the proceeds? It does them no good to sit on cash dollars, and does us no harm.

[marty60]

And the Dums know that.

[Altair333]

"How that will make interest rates and inflation in the US skyrocket is beyond me. "

It's called supply and demand. If the market suddenly has a bunch of 30 yr bonds at today's low interest rates thrust upon it, that will increase supply and reduce public demand for any new bonds the government might issue. Thus, the government will have to offer higher interest rates on the new bonds to attract buyers.

This is not a controversial notion- econ 101.

[MikefromOhio]

people have more money to spend....employers need to hire more people to provide services for the people that have more money to spend...those new employees pay taxes while working to provide the services for those who have more money to spend...

I think they may have more money to spend :)

[ran15]

I also have to keep repeating to everyone that you have to put things in relation to the size of the economy. Same with increases in government size honestly.

[ran15]

They make the classic mistake of looking at America's deficit and thinking wow that is a huge number. And it is, but its smaller relative to our economy, then their defecits on average have been, compared to their own economy.

Of course I'm sure the top policy people in Europe understand that, just their spokespeople and politicians use the 'well at least we're not as bad as America' line. The average European doesn't get that you have to put these numbers in context... they just hear a gigantic number and think 'ooh it sucks to be them'.