Tax Revenues Continue To Shrink US Federal Deficit

by Mike Godfrey, Tax-News.com, Washington

11 August 2006

The Congressional Budget Office has lowered its estimated of the size of the US federal deficit for the fiscal year 2006 largely as a result of higher-than-expected tax revenues.

The CBO, a non-partisan arm of the US Congress, now projects a deficit of $260 billion for fiscal year 2006, about $111 billion less than it estimated in March for the President’s budget. At 2.0% of gross domestic product, the 2006 deficit would be smaller than the deficits recorded in the past three years — 3.5% in 2003, 3.6% in 2004, and 2.6% in 2005.

So far this fiscal year, the federal government has run a deficit of about $239 billion, CBO estimates, $64 billion less than in the first 10 months of last year.

The Treasury recorded a surplus of $20 billion in June. That sum is about $1 billion more than CBO had estimated on the basis of the Daily Treasury Statements, largely because spending in June was slightly lower than expected.

Total receipts were about $223 billion higher in the first 10 months of fiscal year 2006 than in the same period last year, a gain of 12.8%. Individual income tax receipts, which rose by 14.5%, accounted for almost half of that increase ($110 billion). Social insurance tax receipts increased by about $42 billion, or 6.3%.

Corporate income tax receipts accounted for another $56 billion of that gain, growing by 27%, reflecting continued strong increases in company profits. While the growth rate of corporate receipts has slowed somewhat in recent months, probably indicating a slowdown in the growth of profits, corporate tax receipts have increased markedly for three consecutive years, and CBO expects that in 2006, they will total more than two and a half times the amount collected in 2003.

CBO now estimates that total revenues will be $99 billion higher this year than it estimated in March.

According to Senate Majority Leader Bill Frist (R - Tenn), the latest estimates are proof that President Bush's tax and spending polices are working.

“The CBO deficit estimate just released highlights the efforts that have been taken to significantly reduce this year’s deficit. Strong revenue growth and spending restraint played a vital role in the reduction of the deficit to $260 billion," he said in a statement.

"This new estimate, which is nearly $80 billion below the agency’s estimate last winter, highlights the combined benefits of a strong, resilient economy working in tandem with Republican policies to restrain both taxes and spending," he added.

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