How reliable are the economic projections released on almost a daily basis by various agencies of the Federal Government ? Based on this report about a smaller-than-expected federal budget deficit, not very much.
President Bush said today a new, lower estimate of this year’s federal budget deficit shows that his economic policies are working, and he declared that his plan to cut the deficit in half by 2009 is now a year ahead of schedule.
In a speech at the White House, Bush hailed a report today from the Office of Management and Budget showing that this year’s budget deficit “will actually come in at about $296 billion,” compared to what he said was the White House’s “original projection” of $423 billion. The midyear revision is attributable in large part to a recent surge in tax revenue.
And just how far off were the projections ?
The anticipated decline in the deficit is especially welcome because most forecasters expected the costs of hurricane relief and the war in Iraq to widen the budget gap this year. The White House had been among the most pessimistic, projecting a deficit of $423 billion in February, compared with the CBO’s projection of $371 billion.
Obviously, the planners and forecasters in the OMB and CBO missed something. That something is a booming economy.
The anticipated decline in the deficit is especially welcome because most forecasters expected the costs of hurricane relief and the war in Iraq to widen the budget gap this year. The White House had been among the most pessimistic, projecting a deficit of $423 billion in February, compared with the CBO’s projection of $371 billion.
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He said tax revenues grew in 2005 by $274 billion, or 14.5 percent, the largest increase in 24 years. This year, he said, tax collections are expected to grow by $246 billion, an 11 percent increase.
Of course, there’s always someone who can find the downside to even the best news:
“This all relates to the widening income disparities between high-income individuals and the rest of the population,” said Robert Greenstein, executive director of the liberal Center on Budget and Policy Priorities.
Really ? So where did the tax revenues come from ?
Among the fastest-growing types of revenue were corporate income taxes, which rose 26 percent in the nine months ending June 30, according to the CBO. Fueling that growth were skyrocketing corporate profits, which on a pretax basis reached 12.7 percent of GDP in the first quarter of 2006, the highest level since 1950
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Another major source of revenue growth were taxes that are not withheld from paychecks, typically capital gains and year-end bonuses for Wall Streeters and other upper-income people. Revenue from those types of taxes has risen 20 percent, compared with 8 percent for taxes withheld from the paychecks of salaried employees.
In other words, the government got more money from corporations, rich people, and people who make money off stocks and bonds. You should be happy about that Mr. Greenstein.
And, of course, tax revenues increased while tax rates decreased……exactly as they did in the 1980s. Funny how that happens.
