Following the Congressional Budget Office release of an updated budget and economic outlook this past Monday, both the Center on Budget and Policy Priorities and the Senate Budget Committee Democratic Staff released their own analyses of the CBO update. While both CBPP and the Senate budget staff believe the projections are improvements on the White House's mid-year update, they also believe the estimates are too optimistic. In particular, the two reports stress the long-term budget picture has not improved significantly and also that it will drastically worsen if the tax cuts from 2001 and 2003 are extended.

About a month after the White House released its highly misleading and overly optimistic budget projections, the Congressional Budget Office (CBO) released their projections today. The CBO report projects a $331 billion deficit for FY05, a $33 billion reduction since they released an initial estimate earlier this year in March. CBO also has increased their estimate of the total deficits over the next ten years by more than $1.1 trillion to $2.1 trillion. These estimates are much more worrisome than OMB projections released last month as CBO and OMB differ over the ten-year deficits from 2006 - 2015 by more than $600 billion. Unlike the OMB numbers, CBO finds very little reason to be optimistic about the future health of the federal government. They write, "Although the deficit for 2005 is lower than previously expected, the fiscal outlook for the coming decade remains about the same as what CBO described in March." In March, CBO described a very dark future if current policies are continued. This CBO report casts further doubt on administration claims that their economic policies are working to spur strong economic growth and will continue to shrink deficits. CBO has confirmed what many private analysts have reported - that the recent jump in federal revenues are due to short-term and temporary factors that are unsustainable and that over the long-term, the country still faces many large and difficult fiscal challenges. CBO concludes, "Over the long-term, then, growing resource demands...will exert pressure on the budget that economic growth alone will not eliminate." Most strikingly, the CBO report states that if the tax cuts from the administration's first term are extended (with the exception of policies related to the alternative minimum tax), as President Bush has been strongly advocating, deficits over the next decade would increase $1.6 trillion on top of their current projections. The Senate Budget Committee's most senior Democrat Kent Conrad (D-ND) believes the nation needs a "serious fiscal wake-up call" if we are to correct the long-term budget shortfalls that "threaten our economic security." It's time for President Bush to be straight-forward with the American people and begin an honest conversation about adopting alternative policies that will return the country to a sound and sustainable fiscal foundation.

President Bush has once again weighed in on the estate tax issue, claiming the tax needs to be repealed to establish "certainty in the tax code." All sides in this debate agree with President Bush's concern for the need for certainty, but that can easily be achieved by adjusting the tax structure and moving beyond the phase-out system put in place by Congress in 2001 without repealing the tax. As with Social Security, there are only a few minor adjustments needed to achieve a prudent compromise policy on the estate tax, but for some reason President Bush is more interested in scrapping the tax entirely. It seems clear who's best interests President Bush has at heart.

Below are the latest budget and tax articles from the OMB Watcher:

• Estate Tax Vote Slated for September -- Take Action Now
• Office of Management and Budget Continues to Manipulate Budget Projections

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