Corporate Tax Take Boosts Budget, But Spending Could Enlarge 2006 Deficit

by Mike Godfrey, Tax-News.com, Washington

16 January 2006

A record monthly corporate tax haul helped tip the federal budget into surplus in December for the first time in three years, although the ongoing costs of the Gulf Coast recovery program and military operations could push the overall deficit back towards the $400 billion mark in 2006.

According to figures published by the Treasury Department last week, the federal government posted a monthly budget surplus of $10.98 billion last month as gross corporate tax receipts surged to $73.46 billion in December. Last month's surplus compares with a deficit of $2.85 billion in December 2004.

Total tax receipts reached $241.88 billion in December, up from $138.84 billion in November and 12.1% higher than the $215.75 billion in December 2004.

However, while there has been a steady increase in corporate tax receipts over the last two years, December's figure represents something of a seasonal anomaly as this is when most corporations make their final quarterly payment of estimated taxes for the calendar year. Withholding for individual income and payroll taxes accounted for most of the rest of the revenue growth, the Congressional Budget Office said.

Despite the Bush administration's determination to contain spending, outlays also surged to a record amount for the month, hitting $230.90 billion in December, up 5.6% from a year earlier, and up from $221.90 billion in November.

Nonetheless, the White House said last week that much of these outlays stemmed from unexpected spending in the wake of Hurricanes Katrina and Rita, and argued that continued economic growth would help trim the overall deficit over the coming years.

"We believe that those increased outlays associated with the Katrina recovery efforts are a temporary event, and that with continued commitment to the pro-growth economic policies that generate the strong receipts numbers and with continued spending restraint, we will return to our downward trajectory and remain on path to cut the deficit in half by 2009," Joel Kaplan, Office of Management and Budget Deputy Director, told reporters.

"What we saw in 2005 is that the greatest tool we have for reducing the deficit is a growing economy because of the revenue that results. Continuing those policies, again, is the best thing we can do to deal with the unexpected increased costs that we're experiencing as a result of Katrina and the pressure that those costs put on our deficit," Mr Kaplan added.

Still, many economists are of the view that the Bush administration's budget deficit forecast of $341 billion for the fiscal year 2006 remains optimistic, and some believe that the deficit is likely to reach at least $350 billion and possibly as much as $400 billion as the Gulf Coast recovery operations and military spending take their toll on the budget. An emergency war-funding request due out soon could approach $100 billion, according to the Washington Post.

Following four years of budget surpluses, the government fell back into a deficit in fiscal 2002 which then hit a record $412 billion in 2004. Economic growth and spending cuts helped to trim the deficit back to $319 billion last year.

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