Federal deficits: a brighter picture for now
Projected overrun is smaller than expected this year, but long-term outlook remains gloomy, new analysis shows.
When you are borrowing to pay your bills, the less debt you run up in a year, the better.
So it was good news when the nonpartisan Congressional Budget Office predicted Monday that the federal budget deficit would drop sharply for the year ending Sept. 30. CBO said the gap between government income and spending would be $331 billion in fiscal 2005.
The federal budget deficit the CBO is projecting for this year is the third largest in history, but nonetheless down sharply from last year's record $412 billion worth of red ink. In 2006, CBO says the deficit will fall a bit more to $314 billion.
A key question raised by the improving short-term budget picture is whether it will make it harder for Congress to control spending. "It is safe to say budgetary restraint has not been a high priority either for Congress or the Bush administration," says Gus Faucher, senior economist at the consulting firm of economy.com.
One example: before the summer recess, Congress embraced its spending side and approved the most expensive public works legislation in US history.
The $286.5 billion transportation bill signed by President Bush included some 6,371 earmarks for legislators' pet projects.
"Lawmakers who allow themselves to be lulled into thinking that the economy is growing its way out of the deficit are unlikely to support the painful measures needed to reach a more lasting solution," Goldman Sachs economist Edward McKelvey recently wrote to clients.
Some reaction to the CBO report had predictably partisan overtones.
"The strong economy, higher revenues, and falling deficit projections are all results of the successful leadership and policies of the Congress and president," stated House Budget Committee Chairman Jim Nussle. "We are clearly on the right track."
Kent Conrad of North Dakota, the top Democrat on the Senate Budget Committee, said "While this year's deficit will be lower than last year's record shortfall, the improvement is likely to be short lived. Declarations of victory over budget deficits only distract from the disturbing long-term budget outlook."
The new CBO report assessed both the short- and long-term outlook for the government's financial health.
The federal government's finances have "improved noticeably for this year" CBO Director Douglas Holtz-Eakin told a press conference. A 42 percent hike in tax payments by corporations has been a major factor in the improvement.
The CBO director said "we really don't know" if the increase will continue but added that it "doesn't look likely."
The CBO report cautioned that "the fiscal outlook for the coming decade remains about the same" - in a word, challenging. Among the tough financial issues the nation faces are higher Social Security, Medicare, and Medicaid spending as baby boomers prepare to retire.
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