Federal budget deficit expected to shrink

Analysts point to higher tax receipts

July 08, 2005|Associated Press

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 said yesterday.

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 complete update Aug. 15.

The new figures come as the White House is set to release its midyear budget review Wednesday. 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 -- is significantly better than deficits witnessed in the mid-1980s and early 1990s. Then, deficits of 4 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 while the baby boom generation is claiming its retirement benefits.