WP: Revenue Surge Shrinks Deficit

[visionary]

Revenue Surge Shrinks Deficit

Tax Cuts 'Working,' President Says

By Jonathan Weisman

Washington Post Staff Writer

Thursday, July 14, 2005; A01

The federal budget deficit will slip to $333 billion this fiscal year, from $412 billion in 2004, as a surge of unanticipated tax receipts pushes the red ink significantly below levels projected just five months ago, White House officials said yesterday.

The midyear budget forecast also shows that President Bush is on track to reach his goal of halving the deficit a year before his deadline of 2009. By 2008, the White House forecasts that the deficit will fall to $162 billion, or 1.1 percent of the gross domestic product (GDP). A slight rise projected for 2010 reflects the initial cost of Bush's proposal to add private investment accounts to Social Security.

"It's a sign that our economy is strong, and it's a sign that our tax relief plan, our pro-growth policies, are working," Bush said after a Cabinet meeting at the White House.

In dollar terms, the 2005 deficit of $333 billion would still be the third highest on record. That figure relies on the expenditure of about $173 billion in surplus Social Security taxes that must be repaid when baby boomers enter their retirement years. Sen. Jim DeMint (R-S.C.) called the deficit numbers "misleading" because "Congress is raiding Social Security to mask the true size of the deficit," which he says should be more than $400 billion.

But the change from February's projections is dramatic. Then, the White House foresaw a record deficit of $427 billion, equal to 3.5 percent of the GDP, for the fiscal year ending Sept. 30. Under that forecast, the deficit would have risen for the fourth straight year, from the $128 billion surplus Bush inherited in 2001. Now, the deficit is expected to finally begin receding, and it would come in at 2.7 percent of the GDP, smaller in those terms than the deficits of 15 of the past 25 years.

"The U.S. budget deficit is falling, and it's falling fast," said White House budget director Joshua B. Bolten.

Independent budget experts cautioned that a number of debatable assumptions underpin the White House's deficit projections. The improved budget picture for 2005 is almost all the result of $87 billion in unanticipated tax receipts, much of which may have resulted from one-time events, such as a one-year corporate tax holiday enacted last year.

Congressional Budget Office Director Douglas Holtz-Eakin said last week that such events probably will not make much difference for the budget picture by the end of the decade. But the White House assumes that tax receipts will come in an average of $82 billion higher in each of the next five years than the administration forecast in February. A White House budget official called the assumption "eminently reasonable," because tax receipts rarely decline even from elevated levels in an expanding economy.

The White House does include $37 billion in Iraq and Afghanistan war costs for 2006 and $13 billion in 2007, but Bolten said those costs will certainly be higher. The projection does not include additional expenditures to fix the alternative minimum tax (AMT), a parallel income tax enacted to ensure the rich pay taxes but one that increasingly ensnares the middle class. Bolten acknowledged the AMT needs to be fixed but said it should be part of an overall tax reform effort that does not change total tax revenue.

The White House also assumed that interest rates over the next five years will be considerably lower than those projected by the private sector. Lower interest rates would shrink payments due on the expanding federal debt. Such payments have already risen 14.5 percent over the level at this time last year, as the Federal Reserve Board raises rates, according to the CBO. And Anthony M. Santomero, president of the Federal Reserve Bank of Philadelphia, warned yesterday that rates are likely to continue their rise.

Moreover, Bolten said, the real strains on the federal budget deficit will be seen beyond the administration's five-year window, when retiring baby boomers begin driving Medicare and Social Security expenditures dramatically higher.

"Don't be deceived," warned U.S. Comptroller General David M. Walker. "We face large and growing structural deficits in the long term that are getting worse every day, and it's time that we start to address them."

Republicans boasted that the improved outlook vindicated their drive to cut taxes in each of the last four years, claiming that much of the boost in tax revenue was the result of economic growth stimulated by the tax cuts. The White House used the news to resume its push to make permanent tax reductions set to expire at the end of 2010.

"There's no doubt that the effect of the tax cuts . . . have been an enormous factor in producing the additional income that has found its way now into the federal treasury," Bolten said.

Rep. John M. Spratt Jr. (S.C.) and Sen. Kent Conrad (N.D.), the ranking Democrats on the House and Senate Budget committees, agreed that the short-term numbers are a marked improvement. But Senate Minority Leader Harry M. Reid (D-Nev.) said the administration was "claiming credit for an F-plus in fiscal management."

© 2005 The Washington Post Company

[jbooma]

curious how they will spin this

[visionary]

Me too!

A shame that Bush has completely ignored the Deficit!

[jbooma]

Originally posted by visionary

Me too!

A shame that Bush has completely ignored the Deficit!

don't forget the tax cuts were just for the rich :laugh:

[Joe Sick]

Yeah! Let's have a big party now that we are not in as much debt as we thought we were! Yahhh! :doh:

It's quite sad when people are excited about numbers not being as bad as you thought they would be.

I guess when you set the bar low enough, anything seems like a victory...

BTW - Does this include money for the war in Iraq? No? Geez, why wouldn't they include that?

[Fred Jones]

At best it is a short term gain for the administration. The rich, which are the beneficiaries of the long term tax cuts, should be paying taxes at a 2000 level. The Bush tax cuts are not the answer for the long term and I am not on the trickle down economic bandwagon.

[jbooma]

Originally posted by Fred Jones

At best it is a short term gain for the administration. The rich, which are the beneficiaries of the long term tax cuts, should be paying taxes at a 2000 level. The Bush tax cuts are not the answer for the long term and I am not on the trickle down economic bandwagon.

I disagree, since a lot of people like me who are not rich are getting more money from our checks now to purchase more things. Going from paying about 30+% to 28% is huge.

Yes the rich might keep more money but there isn't a lot of them compared to people in my range.

[Fred Jones]

Originally posted by Jbooma

I disagree, since a lot of people like me who are not rich are getting more money from our checks now to purchase more things. Going from paying about 30+% to 28% is huge.

Yes the rich might keep more money but there isn't a lot of them compared to people in my range.

You are still in the middle class range and do not get the tax benefits that the rich get. Also, a lot of the tax breaks Bush enacted disappear for the middle class.

[jbooma]

Originally posted by Fred Jones

You are still in the middle class range and do not get the tax benefits that the rich get. Also, a lot of the tax breaks Bush enacted disappear for the middle class.

Hate to break it to you I still get tax cuts

Why do people care so much what others pay?? The rich still pay more then me just by percentages.

The theory that if you own more you should pay more is the dumbest thing I have ever heard. Personally I think the rich pay too much. What some pay in taxes in a year is double and triple what we get in salary for a year, so why exactly is that fair?

As for getting deductions from your taxes, all of us have the ability just need to learn to use them.

[Fred Jones]

I disagree with you Jbooma. Of course you have deductions, but your deductions are nothing compared to what the rich can take advantage of. The rich can afford to pay more of a percentage than you and many pay less taxes than you, but make a lot more money.

[jbooma]

Originally posted by Fred Jones

I disagree with you Jbooma. Of course you have deductions, but your deductions are nothing compared to what the rich can take advantage of. The rich can afford to pay more of a percentage than you and many pay less taxes than you, but make a lot more money.

Fred if someone is making over 150K I highly doubt they are paying less then me in taxes. Do you understand how tax laws work on the business level, including payroll taxes?

They have to first pay a higher percentage, and they can not deduct more then me since we both can only deduct the same in 401K and any other benefits that lower your tax base.

Plus if they get bonuses those are taxed at 50%, and lets say they are single, well then they pay even more.

[Ancalagon the Black]

Last year represented a truly mind-blowing milestone in government expenditure. The deficit ballooned out to almost unimaginable levels. Cutting the deficit from that level, while a good thing, is not necessarily too surprising. Couple this with the fact that we don't know whether it was last year's increased government spending that created the revenue windfall this year or the tax cuts, and I'd say it's too early to know anything.

[Riggo-toni]

If cutting rates for the wealthy generates more tax revenue, then I'm all for it. The cut in cpaital gains under Clinton/Gingrich was also supposed to be a huge giveaway to the rich, but instead created a middle class of investors and produced the huge revenue windfall that provided us with several years of budget surpluses.

The bottom line is the Bush administration could have had a major surplus with the additional revenue generated from its tax cuts, if it weren't the most gutless gluttonous foolhardy spender in post-war history.

It's great that W has the cajones to try and reform Social Security. That I truly admire. But his Medicare plan was/is a disaster, and he's NEVER vetoed a single spending bill, NEVER.

[Thiebear]

So we dropped approx 200billion in deficits from the projected and its a fake party on not what it could have been???

(thats supposed to dampen the party?)

I paid 9% in taxes after Melwood/house/children and I'm not rich... So I'd say it worked out just right for me...

But this is just speculative:

2 trillion surplus while ignoring corporate banditry that was apparent...

500+ billion deficit while ignoring the economy and 9/11 and airlines / hotels etc..

It's all on paper and from what i've read on this thread by people that actually know what thier talking about: Irrelevant due to the GDP etc...

But like you favorite team: Any good news should be celebrated.

But if your an eagles fan: Any good news should be spun... we have a lot of Kerry err i mean eagles fans stretching...

AND yes I'd push the flat tax and pay 18% straight up....

Remember we just had the thread where they come on and Say EVERYTHING Bush has ever is horrible... those same people will come on here and (poo-poo platter) anything no matter what.

[Cdowwe]

Originally posted by Fred Jones

I disagree with you Jbooma. Of course you have deductions, but your deductions are nothing compared to what the rich can take advantage of. The rich can afford to pay more of a percentage than you and many pay less taxes than you, but make a lot more money.

This is the difference between the left and the right. The right believe you be able to keep what you earn, while the left believe if you work hard for your money, you should give it up for those who dont.

[portisizzle]

Originally posted by Fred Jones

You are still in the middle class range and do not get the tax benefits that the rich get.

That is because rich people make more money than people in the middle class.

Oh, and they pay more in taxes then people in the middle class.

This tax issue is like penis envy for liberals.

[Thiebear]

John Kerry's wife paid more in taxes last year than i will pay in my lifetime: AND for some reason I 'thank' her for it, not begrudge her what she managed to hold on too...

She is paying the people that watch her 7 hummers

She is paying the people that watch her 5 houses

She is paying the people that watch her G5

She is paying the people that hire other people to do theirs

hmmm, seems like a great plan.

Just because you don't like someones ideas doesnt mean they arent doing something...based on ideology... its a sad thought process

[du7st]

A deficit is just a tax that has yet to be levied. That money will have to be paid by the taxpayers eventually (either directly by say the AMT or indirectly by say inflation) so it is short sighted and selfish to cheer for tax cuts today. You should get to keep as much of your money as you can but not at the expense of future generations.

Less deficit than expected? Great. Of course, if our government was actually responsible they would be running a surplus right now in order to prepare for the boomer retirement set to phase in soon. Unfortunately our government is not set up well to deal with long term problems.

[jbooma]

Originally posted by du7st

Unfortunately our government is not set up well to deal with long term problems.

So where have you been since 1776

[Riggo-toni]

Originally posted by du7st

A deficit is just a tax that has yet to be levied. That money will have to be paid by the taxpayers eventually (either directly by say the AMT or indirectly by say inflation) so it is short sighted and selfish to cheer for tax cuts today.

I agree with your first statement in part, but not with your conclusions.

Deficits are a sort of hidden tax, though in part its most deleterious effects are actually immediately felt through higher interest rates. If fiscal policy, on the other hand, works as a catalyst for additonal growth, even as little as adding an extra 1/4 point to GDP, the debt to GDP ratio shrinks, thus making the debt more serviceable for future generations.

Tax cuts and tax reform, if done properly, often increase revenues, as may well be the case here, and as was definitely the case in the late 90s. Under such scenarios, applauding tax cuts is both proper and far sighted.

The reason we are running a deficit now is NOT because of the recent tax cuts, but rather because of the most mammoth increases in spending since FDR. Billions wasted on rolling back agricultural reforms of the 90s, tens (and potentially hundreds) of billions for a medicare prescription program that is a complete failure, putrid largess in pork programs disguised as part of homeland security, etc., and a President who lacks the fortitude to veto any of the fat that falls on his desk.

[Fred Jones]

Whatever happened to the church? I thought the conservative right values the church and their teachings? One of the reasons they won the 2004 election was because they catered to the church goers in the middle of the country.

When I go to church they tell me to share what I have, forgive those that trespass against me, not horde all the money for myself.

Just all very interesting.

[gbear]

So the defecit is less than last year...meaning we aren't wracking up debt as fast as we thought. I can't help but view this as good news. I did note the part in the article about still not being able to grow our way out of the defecit. I also noted that it happened in large part because some tax cuts were allowed to expire (raised taxes). Na, i'm usre the Republicans on here will take this as proof supply side econ works for tax cuts (even though we did less terrible because of a tax hike.

I also noted that it compared our revenue to last year instead of going back further to the time of the tax cuts and adding inflation. All that being said, I'm sure some will spin this as justification. Me, I'll just take some small solace that we aren't wracking up the debt as quickly as we thought we would.

[jbooma]

Originally posted by Fred Jones

Whatever happened to the church? I thought the conservative right values the church and their teachings? One of the reasons they won the 2004 election was because they catered to the church goers in the middle of the country.

When I go to church they tell me to share what I have, forgive those that trespass against me, not horde all the money for myself.

Just all very interesting.

where do you get your logic from :doh:

[NavyDave]

What a great idea we should contribute like we do when we go to church.

Yeah imagine you directly giving tax money to specific destinations

I can see it now we get our gross pay every two weeks and:

A heroin addict knocks on the door for money to get methodone

Then a 16 year old kid knocks on the door with a 15 year old girl expecting a check so they can buy condoms.

The rubber breaks and nine months later she comes back expecting rent money, and food for her and her baby.

Then a PBS represntative comes by waiting for a check so he can tell us how bad the country is because its not liberal enough.

[Fred Jones]

Jb, I was just ranting on a topic that would take waaaaayyy to long to explain. If you did not pick up on what I am talking about I am sorry because I am not going to explain. I would get responses that I don't have time to respond or defend. Just listen to what is taught and apply that to real life.

Concerning this article, here is an editorial piece dealing with the tax revenue.

http://www.washingtonpost.com/wp-dyn/content/article/2005/07/13/AR2005071301979.html

THE LATEST DEFICIT news is good instead of the usual grim, which is certainly a welcome change. The Bush administration released revised deficit estimates yesterday projecting that the fiscal 2005 shortfall would be $333 billion -- nearly $100 billion less than it had anticipated in February and far below last year's record $412 billion deficit. That followed a similarly upbeat assessment from the Congressional Budget Office, which reported last week that it expects this year's deficit to be "significantly less than $350 billion, perhaps below $325 billion."

The reason for this rosier scenario is an unanticipated surge in tax revenue, with receipts projected to rise a whopping 14 percent from last year's level. But it would be dangerous -- and wrong -- to take this news as evidence that President Bush's tax cuts were wise policy, that the tax cuts should be made permanent or that deficit worries can be safely ignored.

This year's healthy tax take follows three straight years -- the three years after the Bush tax cuts were first passed -- of falling tax receipts. Last year, tax revenue was at its lowest level as a share of the economy in 40-plus years. And even this year's receipts are far less than the administration had projected they would be in 2002. In short, the unexpected increase is good news only in comparison to the disappointing performance of the recent past. The notion that the tax cuts would somehow magically pay for themselves hasn't proved true; instead, taxes have come in far lower than was anticipated when the cuts were passed.

Moreover, there's every reason to think that much of this year's more bountiful tax take could be temporary. A big chunk of the increased revenue comes from the expiration of an investment tax break, a one-time bump-up. Similarly, last year's tax bill created a one-year tax break for multinational corporations' overseas profits; this is also a once-only boost and could reduce tax revenue next year.

The increase in individual income taxes doesn't reflect any big hike in taxes deducted from paychecks. Rather, it comes mostly from "non-withheld taxes" -- takes on income such as big bonuses or capital gains from the sale of stock and houses. This, too, could prove ephemeral. As Goldman-Sachs concluded in a recent analysis, "The fact is that both growth and stock market momentum have cooled in 2005. Thus the strength in non-withheld taxes is apt to fade as well."

CBO Director Douglas Holtz-Eakin has wisely cautioned that the current improvement should be taken "with a grain of salt," adding, "There's simply no question if you take yourself to 2008, 2009 or 2010, that vision is the same today as it was two months ago." But the administration takes this year's good news and assumes that much of it will continue, with extra tax revenue averaging around $80 billion annually for the next five years. Combining that with optimistic assumptions about low interest rates, the administration foresees deficits falling to just over 1 percent of gross domestic product by 2008.

Perhaps that will happen. But if there is a lesson from the faulty forecasts and ephemeral surpluses of recent years, it is the danger of making that gamble. What's certain, meanwhile, are the fiscal pressures that will hit down the road, as the baby boomers begin to retire. This should be the time to be preparing for those costs, not piling on more debt.