CBO projects deficit of $172 billion in ’07
The Congressional Budget Office on Jan. 24 said this year’s federal deficit will be $172 billion, far smaller than last year’s tally, and that the budget is on track to be balanced by 2012 without any action or interference from Congress or the president.
But the CBO cautioned that the short-term number doesn’t include $30 billion in expected war costs, and that the long-term picture is unlikely to materialize because it assumes giant tax increases with the expiration of President Bush’s 2001 and 2003 tax cuts and with the growth of the alternative minimum tax. Congress and the president have promised to cut at least some of those taxes.
“When these adjustments are made, the estimates from CBO become a bleak reminder of how much current policy will need to be changed to return the budget to a fiscally responsible course,” said House Budget Committee Chairman John M. Spratt Jr., South Carolina Democrat.
The figures set the stage for Mr. Bush, who will present his fiscal 2008 budget early next month. That fiscal year begins Oct. 1.
Rob Portman, director of the Office of Management and Budget, said Mr. Bush will show a higher deficit in 2007 and different projections for later years because he makes different assumptions. Mr. Portman said a key difference is that the administration’s budget will assume the tax cuts do not expire.
Still, he said Mr. Bush’s budget also will show declining deficits and a balanced budget in 2012.
“Congress should be encouraged by this news, and I am opti- mistic that we can work together — across party lines — to keep the economy strong and spend taxpayer dollars wisely,” he said.
The good fiscal news is thanks mostly to extraordinary revenue growth, rather than spending cuts.
Although Mr. Bush has touted a promised balanced budget by 2012, the CBO’s projections show the balance would be achieved without any help from Mr. Bush — as long as he didn’t propose deeper tax cuts or more spending.
The CBO projects a $170 billion surplus in 2012, after a deficit of $12 billion the year before. The 2006 deficit was $248 billion.
In 2011, the CBO projects, the federal debt will peak at $5.4 trillion before declining as the budget comes into balance.
House Majority Leader Steny H. Hoyer, Maryland Democrat, said that however good the news, it is still a long way from the huge surplus projected for 2007 when Mr. Bush took office six years ago.
“The reality is that this CBO projection represents a $750 billion deterioration in the budget outlook for fiscal 2007 from the one President Bush inherited when he took office,” Mr. Hoyer said.
The CBO report included a warning about the long-term picture, with the aging population putting more stress on Medicare, Medicaid and Social Security.
“Either a substantial reduction in the growth of spending, a significant increase in tax revenues relative to the size of the economy, or some combination of spending and revenue changes will be necessary,” the report concluded.