WASHINGTON – 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 (search) -- 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.