The Congressional Budget Office has released its August update of economic and fiscal data. Due to surging income tax receipts, the federal deficit for 2007 is expected to be $158 billion–a decline of $19 billion from the March projection, and $90 billion less than 2006. It’s unclear right now (but should be better understood when more detailed data are available) what is causing the surge in income tax receipts. It could be (as CQ points out) due to greater ‘income inequality’ pushing more income into higher tax brackets, but there’s no way of knowing yet. According to this baseline projection, the deficit will fluctuate up and down through 2011, then come into surplus in 2012, after the ‘Bush tax cuts’ expire. By adding more than $150 billion in anticipated revenue, the CBO projects a surplus of $62 billion. Congressman Paul Ryan, the senior Republican on the House Budget Committee, points out that the improved projections are due to higher revenues, resulting from improved economic growth. But that growth is threatened by the tax increases that Democrats propose–including the expiration of Bush’s tax cuts, as well as increases in energy and tobacco taxes. Further, these projections do not take into account the new spending proposed by the Democrats. Congress has already passed $48 billion more in emergency appropriations than previously anticipated–and CBO does not consider this. The expansion of S-CHIP will cost $35 billion over the next 5 years (or much more over 10), and Congress needs 9 million new smokers to fund it–or it will increase the deficit. (Smoke’m if you got’em?) Further, the economy has been growing nicely and consistently for years. The $400 billion tax increase advocated by Democrats is likely to effect that–and not for the better. In addition to the possible negative effect on the economy, there’s also the recent finding by the Joint Economic Committee that tax increases lead to higher spending. (But maybe this tax increase will be different.) Lastly, we are now growing closer to the period in which unfunded entitlement programs begin to adversely impact the deficit. CBO projects that in 2017, the Federal Government will begin to draw down the Social Security surplus. Put another way, we will begin to transfer funds from income tax and other federal revenues to Social Security, to pay for benefits. For years we have done the opposite — transfer from Social Security revenues to pay for general government spending. Starting in that year and lasting for decades after that, Social Security will no longer help pay for deficit spending, it will be a new source of deficit spending to be paid for. Few in Congress seem eager to address that problem.
