Wednesday, January 24, 2007

Strong Economic Growth Shrinks Deficit - Again

Last night the President promised to submit a budget that would eliminate the federal deficit by 2012. Today, the Congressional Budget Office announced that if current laws and policies remain unchanged, the budget will 'essentially be balanced' by 2011, and will have a substantial surplus by 2012. The surprising good news is due to surging government revenues.

Note that when CBO assumes that 'current laws and policies remain unchanged,' that means they anticipate that taxes will go up again after 2011, when President Bush's tax cuts are slated to expire. If Congress extends those cuts or makes them permanent, the deficit picture looks somewhat worse. CBO also projects that federal revenues will stay around 18.6 percent of GDP, a 'historically high level.'

Democrats will fight tooth and nail to maintain current policy, and allow taxes to go back up. They need to do that in order to fix the alternative minimum tax, expand domestic spending, and not increase the deficit.

Update: Andrew Roth notes the lousy job that CBO has done on capital gains tax estimates. Rather than 'cost' the Treasury $5.4 billion, the capital gains tax cut gained $133 billion in revenue.

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