A surge of unanticipated tax receipts will push this year's deficit down to $260 billion, a $58 billion improvement on last year's red ink. But the deficit will begin to rise again next year and will improve substantially only if President Bush's tax cuts are allowed to expire, the Congressional Budget Office said yesterday.
Come the 2010s and the retirement of the baby boomers will send the deficit soaring.
The budget office's figures provide ammunition for both sides. This year's deficit is not only projected to be lower than last year's, despite ongoing war expenditures and hurricane relief, but it is also $112 billion lower than the CBO estimated in March when it analyzed the president's budget proposals. Even after successive waves of tax cuts, tax revenue is rising faster than predicted, while spending, especially on Medicare and Medicaid, has been less than initially projected. The near-term budget picture "has improved significantly," analysts with the budget office concluded.
But the longer term outlook -- clouded by baby boomers who will be retiring just as the reach of Bush's tax cuts begins to expand -- has "not changed materially," the report emphasized.
This year's $260 billion deficit is projected to rise to $286 billion next year and $328 billion by 2010, only to plunge when the tax cuts expire in 2011.
Higher taxes? Cuts in retirement entitlements programs?
Update: The US government's financial state is far worse than a cursory glance at the current deficit and current debt would suggest. The reason? Unfunded liabilities. These are promises to pay future benefits using money that exceeds what the government can expect to collect in taxes. See my posts On The Medicare And Social Security Unfunded Liabilities, Social Security And Medicare Headed For Bankruptcy Sooner, Taxes For Aging Population To Trigger Political And Economic Death Spiral?, and Audited Financials Show Larger US Government Debt.
|Share |||By Randall Parker at 2006 August 20 11:55 PM Economics Government Costs|