Flood Of Tax Receipts Eases US Deficit Worries

by Leroy Baker, Tax-News.com, New York

06 May 2005

The Bush administration received some unexpected good news on the fiscal front this week after the US Treasury stated that the budget deficit will swing into surplus during the April through June quarter. However, the longer term outlook remains less optimistic for the government's finances.

The Treasury Department this week reported that there would be a $54 billion swing from projected deficit to surplus in the three months from April through June, largely as a result of a glut of tax payments which poured into the Treasury prior to the April 15 deadline.

Revenues from the ever expanding Alternative Minimum Tax, and from capital gains taxes, are thought to make up a significant portion of these tax payments.

While analysts have lowered their forecasts for the deficit for the fiscal year ending September 2005 to around $370 billion (from $400 billion), the recent announcement by the Treasury Department that it is considering the reintroduction of the 30-year Treasury bond signals that the positive rebound may not be long-lived.

The Bush administration has cut some $1.85 trillion in taxes since coming to office. However, deficits have been exacerbated by an increase in spending. Indeed, a new report from the Cato Institute has suggested that George W. Bush is the highest spending president since Lyndon Johnson.

According to Cato, during Bush's term, government spending has risen to 20.3% of gross domestic product, up from 18.5% when Bill Clinton left office in 2001, and the highest level since 1995.

"Once President Bush was elected, the spending floodgates opened: Congress sent to the president's desk budgets that spent a total of $91 billion more than the president requested for domestic spending," the study noted.

"Instead of drawing the line at his already-extravagant budget proposals, Bush signed every spending bill during his first term," it added.

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