By Jonathan Allen
The federal budget deficit for the current fiscal year is projected to be $333 billion, down sharply from $427 billion forecast in February, the White House Office of Management and Budget (OMB) said Wednesday.
Evolving Deficit Estimates
The new estimate for the year ending Sept. 30 tracks closely with last week’s revised projection by the Congressional Budget Office (CBO), which forecast a fiscal 2005 deficit of less than $350 billion and possibly less than $325 billion. Deficit projections from the two budget offices have diverged in the past.
The fiscal 2004 deficit totaled $412 billion, $10 billion less than CBO’s August estimate and $33 billion less than OMB’s mid-session review.
Most of the improvement this year, according to OMB and CBO, results from higher-than-anticipated tax revenue from corporations and individuals. Republicans in the White House and Congress were quick to credit the economic stimulus provided by President Bush’s tax cuts for the increased revenues.
“Once in place, tax relief has produced the desired results,” OMB Director Joshua B. Bolten said.
“Republican policies of spending restraint and tax relief have put in place the ingredients of a strong economy: shrinking deficits, continued job growth and record homeownership,” House Speaker J. Dennis Hastert, R-Ill., said in a statement.
Democrats pointed out that the administration has not included some future costs, such as the full price of military operations in Iraq and Afghanistan, in the five-year period that the budget covers.
“As bad as the projected deficits seem, the true picture is worse,” John M. Spratt Jr. of South Carolina, the top Democrat on the House Budget Committee, said in a statement.
“This year’s deficit will still be the third highest ever, and only the current Republican party would celebrate such a poor record,” said House Minority Whip Steny H. Hoyer, D-Md.
The OMB’s mandated mid-session review projects that the deficit will continue to decline over the next few years. Those projections show Bush meeting his goal of “halving” the projected $521 billion fiscal 2004 deficit — an amount that would have been 4.5 percent of gross domestic product — in 2007, ahead of his five-year goal.
According to OMB’s projections, the deficit would initially rise to $341 billion in fiscal 2006, and then fall to $233 billion in fiscal 2007 and $162 billion in each of 2008 and 2009, before rising slightly to $170 billion in 2010.
In February, OMB projected the following deficits: $390 billion in 2006, $312 billion in 2007, $251 billion in 2008, $233 billion in 2009 and $207 billion in 2010.
Some analysts have said increased revenue from individual and corporate income taxes may be a one-time spike attributable to several factors, including an expiring tax break and a strong stock market in 2004 that produced big capital gains.
Sen. Jim DeMint, R-S.C., praised the administration’s fiscal policies but warned that the picture is not entirely rosy.
“Before anyone breaks out the champagne, we need to recognize that these numbers don’t tell the full story. Congress is raiding Social Security to mask the true size of the deficit,” said DeMint, author of a Social Security overhaul proposal.
Social Security trust funds remain in surplus for now, and that surplus is included in deficit calculations. In future years, as the retirement system struggles to pay benefits to the baby boom generation, that surplus will be exhausted.
Jim Nussle, R-Iowa, the House Budget Committee chairman, cautioned that a declining deficit is no reason for lawmakers to line up for more spending.
“I don’t want any of this to sound the dinner bell for anybody who is out there interested in more spending,” Nussle said. “We have to remain vigilant with regard to spending.”