White House lowers fiscal-2005 deficit outlook to $333B -
Wednesday, July 13, 2005 7:04:57 PM
http://www.afxpress.com

WASHINGTON (AFX) -- President Bush on Wednesday said surging tax receipts and a decline in the White House's fiscal 2005 deficit forecast vindicated his tax cuts and puts the administration ahead of schedule on its quest to halve the federal budget deficit

As expected, the Office of Management and Budget's annual mid-session review forecast that the federal government will run a deficit of $333 billion in fiscal 2005, narrower than its February forecast that had called for a nominal record of $427 billion

"In other words, revenues are coming in greater than anticipated.?It's a sign that our economy is strong, and it's a sign that our tax-relief plan, our pro-growth policies are working," Bush told reporters following a meeting with his cabinet

The White House now sees deficits totaling $1.067 trillion from fiscal 2006 to 2010, down from a previous forecast of $1.393 trillion in February. In a separate report, the Treasury Department said the June surplus totaled $22.4 billion, up from $19.1 billion a year ago. Through the first nine months of the year, the deficit has totaled $249.8 billion, compared with $327.2 billion last year. Revenues for the first nine months of fiscal 2005, which began last Oct. 1, are running about 15% ahead of the same period in fiscal 2004. Revenue from personal income taxes is up 16%, while revenue from corporate taxes is up 41%

Spending is up 7% from last year

Some budget watchers, however, have warned that the recent surge in tax receipts may prove only temporary. Also, a portion of a recent increase in corporate revenues may stem from the expiration of a 2002 tax break, they warn. The OMB, however, argued in its report that making many of Bush's 2001 and 2003 tax cuts permanent would provide the economy an ongoing boost, while allowing them to expire would "endanger the economy's prospects, placing into doubt gains in job creation and business investment that are critical to increases in tax revenues and further reductions in the size of the deficit." Democrats said that the expected reduction in the deficit is welcome news but that the long-range outlook remains dire. They contend that extending Bush's tax cuts will create a major fiscal crisis beyond the budget timeframe used in administration forecasts

"Looking forward, deficits and debt will explode just outside the administration's five-year budget window -- as the rising cost of tax cuts and other administration policies collide with the retirement of the baby-boom generation," said Sen. Kent Conrad of North Dakota, the senior Democrat on the Senate Budget Committee. "Our big problem isn't in the near term," he said. "We're in the sweet spot of the budget cycle now." Agreeing to disagree Critics charge that budget figures don't support the administration's contention that the tax cuts have generated a rebound in revenues, arguing that while revenue growth is accelerating, receipts haven't made up for the decline in revenues seen from 2001 to 2003. Even if revenues continue to come in at a stronger-than-expected pace through the remainder of the fiscal year, total revenues are likely to remain below inflation-adjusted 2000 levels, warned the Committee for a Responsible Federal Budget, a bipartisan group that advocates deficit reduction

Bush in 2004 pledged to trim the budget deficit in half by 2009, but he started from a fiscal 2004 deficit forecast of $512 billion, which never actually materialized. Instead, the deficit totaled $412 billion -- still a record in dollar terms, but smaller than deficits seen in the 1980s and early 1990s when measured as a percentage of the economy

Bush said the new OMB figures show the White House is on track to achieve its goal before 2009, provided Congress holds the line on spending

The OMB forecasts the deficit to total $341 billion in 2006, representing 2.6% of gross domestic product. The OMB sees the deficit falling to $162 billion in fiscal 2008 and 2009, or 1.1% of GDP, rising to $170 billion in 2010