IVD: Bush may reduce the deficit by half...this year!

http://www.investors.com/editorial/IBDArticles.asp?artsec=5&issue=20060612&view=1

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Investor's Business Daily
Feature Story
Bush May Meet Vow To Halve The Deficit Three Years Early

BY JED GRAHAM

INVESTOR'S BUSINESS DAILY

Posted 6/12/2006

Aided by surging tax receipts, President Bush may make good on his pledge to cut the deficit in half in 2006 — three years early.

Tax revenues are running $176 billion, or 12.9%, over last year, the Treasury Department said Monday. The Congressional Budget Office said receipts have risen faster over the first eight months of fiscal '06 than in any other such period over the past 25 years — except for last year's 15.5% jump.

The 2006 deficit through May was $227 billion, down from $273 billion at this time last year. Spending is up $130 billion, or 7.9%.

The CBO forecast in May that the 2006 deficit could fall as low as $300 billion. Michael Englund, chief economist of Action Economics, has long expected a deficit of about $270 billion this year. Now he thinks there's a chance the "remarkable strength in receipts" will push the deficit even lower.

With the economy topping $13 trillion this year, a $270 billion deficit would equal less than 2.1% of GDP, easily beating the president's 2.25% goal. Bush made his vow when the White House had a dour 2004 deficit forecast of 4.5% of GDP, or $521 billion. The actual '04 deficit came in at $412 billion, or 3.5% of GDP, before falling to $318 billion, or 2.6% of GDP, in 2005.

A CBO analysis last week noted that withheld individual income and payroll taxes are up 7.6% from a year ago, with the gains picking up in recent months.

"Those gains suggest solid growth in wages and salaries in the national economy," CBO said.

While gains are broad, those at higher-income levels are enjoying bigger salary hikes. Because they pay higher rates, federal tax revenues soar when they do well.

Those making over $200,000 now pay 46.6% of total income taxes, presidential adviser Karl Rove recently said. That's up from 40.5% — despite Bush's tax cuts.

Nonwithheld income tax receipts are up about 20% vs. a year ago. That may reflect year-end bonuses and capital gains.

Corporate income taxes are up about 30% from last year's pace.

While economic growth is producing impressive tax revenue gains, budget experts say they won't be enough to wipe out deficits, especially as baby boomers retire. Englund thinks the deficit could hit $150 billion if the expansion lasts two or three more years. "When we go into a downturn, the numbers reverse," he said.

Long-term growth in Social Security, Medicare and Medicaid "threaten to force either European-style tax increases, unprecedented spending cuts or unprecedented debt," said Heritage Foundation budget expert Brian Riedl. "There's no growing out of the long-term budget problems."

Heritage sees an $800 billion deficit in 2016, assuming tax cuts are extended and spending stays on its present course. If the economy and tax receipts continue to outperform, the deficit would still be at least $600 billion, Riedl said.

He noted Congress has been more disciplined about discretionary spending lately. But that saves a mere $10 billion a year, he said.

Late last week, House and Senate negotiators reached a deal to hold a supplemental spending bill for Iraq, Afghanistan and hurricane relief to under $94.5 billion.

The Senate had tacked on another $14 billion, but Bush vowed to veto any bill above $94.5 billion.

 

i don't need your war machine
i don't need your ghetto schemes
now woman, said stay away-heh

 

As our case is new, so we must think anew, and act anew.