The Bush Economy

US deficit is shrinking, for now


With the robust economy, tax revenues are pouring in. But rising costs lie ahead.

Despite the ongoing costs of US military campaigns in Iraq and Afghanistan, the outlook for the federal budget has grown substantially brighter.


Tax revenues are rising much faster than spending, according to Treasury Department numbers released last week. The recent trend is strong enough that, were it to continue, the budget could move into surplus in barely a year, one economist calculates.

Already, the federal deficit is shrinking toward about half the size that it has averaged since 1970, when analyzed as a percentage of gross domestic product.

The shift reflects a strong economy, with higher incomes and corporate profits generating a bigger flow of tax revenue. In turn, the Treasury's progress could help the economy by buoying investor confidence in the nation's fiscal position.

Some experts say the budget could achieve balance in the short run of the next few years. In unveiling its proposed budget this month, the Bush administration forecast black ink on the federal ledger in 2012. The nonpartisan Congressional Budget Office (CBO), in its recent annual outlook, also shows a surplus for that year.

A year ago, the CBO's forecast for the 2007 fiscal year called for a deficit of $270 billion. In the annual outlook released last month, the 2007 gap is projected at $172 billion.

"Right now, we're in some sense in a relatively good spot," says Jim Horney, a budget analyst at the Center for Budget and Policy Priorities, a liberal think tank in Washington. "We're in the sixth year of an economic expansion," a time when federal revenues often rise along with a growing economy.

The budget deficit now stands at about 1.4 percent of the nation's GDP, well below the 2.3 percent that's been the norm since 1970, according to economist Michael Darda of MKM Partners in Greenwich, Conn. "At the current pace, the budget could move back into surplus as early as May 2008," Mr. Darda wrote in a report to clients last week.


I've redacted all the doomsaying about long term predictions. They're a naked attempt to mitigate any positive coverage for Bush or his policies. They're also rife with unknowns that make any predictions SWAGs at best.

Bottom line: The economy is doing great despite the war and despite whining and moaning to the contrary.

Comments

Anonymous said…
no one argues the economy is doing well. It is who is benefitting that is becoming the talking point.

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