US Federal Deficit Sinks As Tax Revenues Soar

by Mike Godfrey, Tax-News.com, Washington

14 June 2005

The United States Treasury has forecast a sharp drop in the government's fiscal deficit in 2005 as a result of soaring tax revenues.

According to Treasury Secretary John Snow, the federal deficit is likely to come in "well below" the initial forecast of $427 billion, with the final figure likely to end up in the "mid 300s" range.

Treasury figures released last Friday indicated that the deficit fell to $272.2 billion for the first eight months of the fiscal year, which began in October. This compares to a figure of $346.3 billion at the same time last year.

The monthly deficit also showed a considerable improvement in May, falling to $35.3 billion - the smallest gap for the month since 2001 - achieved as tax receipts from individuals leapt 88% and total tax revenues rose by 32% from May 2004.

Addressing reporters in London on Friday following a meeting with G8 finance ministers, Mr Snow observed that:

"With tax revenue showing sizable increases this year, I was able to indicate that we now expect the Federal budget balance to come in well below the $427 billion that had been projected for fiscal year 2005. In fact, many private forecasters are projecting that the federal deficit this fiscal year will come in under 3 percent of GDP."

Snow went on to indicate that he was in favour of further tax cuts to ensure economic growth is maintained.

"I also reiterated that we continue to press ahead to further enhance the conditions for strong growth well into the future – by making the tax cuts permanent, reducing the burden of frivolous lawsuits, passing a national energy policy, and strengthening social security," he stated.

Recommended