CBO's Monthly Budget Review has been released: The federal government incurred a deficit of $152 billion during the first eight months of fiscal year 2007, CBO estimates, $75 billion less than the shortfall recorded through May of last year.

The Government Accountability Office (GAO) has released the latest version of their "The Nation's Long-Term Fiscal Outlook" report today. As with previous reports, GAO finds little change in the long-term outlook and warns that current fiscal policies are unsustainable (duh!). Despite re-stating the important fact that current policies are unsustainable, the report also helps to distinguish what is driving long-term imbalances. Instead of lumping Social Security and Medicare together and labeling the problem as an "entitlement" one, the GAO report highlights health care costs generally as the major obstacle. The relevant paragraph from the report states: Although Social Security is a major part of the fiscal challenge, it is far from our biggest challenge. Spending on the major federal health programs (i.e., Medicare and Medicaid) represents a much larger and faster growing problem. In fact, the federal government's obligations for Medicare Part D alone exceed the unfunded obligations for Social Security. Over the past several decades, health care spending on average has grown much faster than the economy, absorbing increasing shares of the Nation's resources, and this rapid growth is projected to continue. For this reason and others, rising health care costs pose a fiscal challenge not just to the federal budget but to American business and our society as a whole. Under the leadership of Comptroller General David Walker, the GAO continues to bring an important and under appreciated voice to long-term fiscal policy debates. The short report is worth a read: GAO: The Nation's Long-Term Fiscal Outlook

The Organisation for Economic Co-operation and Development released its biannual Economic Survey of the United States this week. The report itself will make for good summertime reading on the beach, but it's mention of income inequality makes it especially exciting. Policies and global trends that have made the economy more open, flexible and dynamic — thereby boosting productivity and overall prosperity — may have increased inequality. If unaddressed, concerns about inequality have the potential for eroding support for such policies.

The Wall Street Journal reported yesterday ($) on a plan in Congress to require private brokerage and financial companies to report the "basis" amount of securities that were sold in a given year. This plan was released last week by the Senate Finance committee and it is estimated that it will bring in $11 billion in unpaid capital gains taxes each year - a small, but substantial portion of the overall tax gap related to non-wage income. This is a straight-forward commons sense idea that would help to equalize the treatment of work and wealth in the U.S., at least within the IRS. Currently, payroll taxes (and to a large extent income taxes) are easily calculated directly by the IRS because employers are required to report the amount of income they pay their employees to the IRS. Because of this system, it is very difficult to cheat or make a mistake on your payroll or income taxes and easy for the IRS to catch you if you do (unless you are self-employed, in which case you are reporting your own income to the IRS). But there is no similar requirement for reporting of capital gains taxes (or loses). When individuals report their capital gains or losses, say, from selling shares of stock in a company, they need to calculate the difference between what they paid for the stock, and what they sold it for. The amount they paid for the stock is called the basis. It is much more difficult for the IRS to verify the individual has calculated their tax liability correctly because it does not receive confirmation of the basis for sales of stock and other securities. This plan would help prevent individuals from intentionally cheating or making a mistake in their capital gains and loses by providing the IRS with a way to check individual returns. It would require reporting requirements for income made from wealth to match the reporting requirements for income made from work. While the $11 billion per year brought into the government is actually a small amount compared to the overall tax gap, this proposal would collect sufficient revenues to pay for the entire SCHIP reauthoization bill being debated this year. There are no details on how soon the plan would be introduced as legislation, but with both Finance Committee Chair Max Baucus (D-MT) and Ranking Member Charles Grassley (R-IA) supporting the plan, it is likely it will be broadly supported in the Senate.