CBO Projects $337 Billion Deficit for 2006

Today the Congressional Budget Office projected a $337 billion deficit for 2006. The increase over last year's $318 billion recorded deficit is largely attributed to hurricane costs and the introduction of the Medicare prescription drug benefit this month. $337 billion is far less than the Office of Management and Budget's estimate stating that the deficit will exceed $400 billion this year.

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Upcoming 2006 Budget Process Portends Deep Discretionary Cuts

The FY 2006 federal budge, scheduled to be released in February 2005, is important now because federal agencies are already making decisions prior to submitting their individual budgets to the Office of Management and Budget (OMB) in September. The Bush administration has proposed cutting the budget deficit in half over the next five years, while John Kerry has proposed that he will do the same in four years. Because neither presidential candidate seems willing to cut funds from the Defense or Homeland Security programs, there is going to be considerable pressure for them to cut non-defense discretionary spending.

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EPI Studies Shed Light On Current Economic Situation

The Economic Policy Institute released two important studies this week that offer insight into how federal fiscal policies can and do impact people.

The first study, a book titled “Exceptional Returns: Economic, Fiscal, and Social Benefits of Investment in Early Childhood Development,” argues that increased investment in Early Childhood Development programs (ECD’s) will have financial payoffs for society in the future. If the government increases spending now to provide quality education and development programs for low-income children in the early stages of life, society will end up paying significantly less in the long run in terms of costs for remedial and special education, criminal justice, and welfare benefits.

The study highlights the fact that a publicly financed, comprehensive ECD program for all children from low-income families would cost billions of dollars annually, but would create much larger budget savings over time. Policies that will serve to generate billions of dollars in budget benefits should not be ignored. This month the Congressional Budget Office reported that the final deficit for FY 2004 was $413 billion; as this study proves, however, by investing now on current programs, society will end up saving a lot of money in the future. Click here for more information on the deficit.

EPI’s second report, released today, is called “Less Cash in Their Pockets: Trends in Incomes, Wages, Taxes, and Health Spending of Middle-Income Families, 2000-2003.” The report examines certain income trends and highlights the fact that the economic well being of middle-income families has changed significantly over the last few years; and that specifically, many middle-income families lost ground between 2000 and 2003 and now have less income available to meet their needs.

Both of these important reports can be found the Institute’s web site, www.epinet.org. Their findings call into question some of the economic policy decisions that have either been made, or overlooked, by the executive and legislative branches of this country. As we face the highest deficit we’ve ever seen, it is important to keep in mind both how tax cuts really affect the middle class, and what kinds of investments the government can make now to help our economy in the future.

To learn more about how recent tax cut legislation will affect the middle-class families, read this report from the Center on Budget and Policy Priorities.

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Senate Pushes Through Corporate Tax Bill Over Holiday Weekend

The Senate commemorated the Columbus holiday Oct. 11 by holding a special session to pass the corporate tax bill, also known as the FSC/ETI bill. The previous week the House had passed the bill, which was designed to remove certain corporate tax subsidies on exports which had been ruled illegal by the World Trade Organization two years ago. The new tax breaks hit the nation at a time when corporate tax revenue has dropped to a historic low -- and the federal deficit has climbed to an all-time high. Last week, the Congressional Budget Office reported the FY 2004 federal deficit hit a record $413 billion.

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CBO Releases Preliminary Deficit Numbers for FY2004

Last month the Congressional Budget Office (CBO) projected a $422 billion deficit for fiscal year 2004, and a $348 billion dollar deficit for FY2005. To see an OMB Watch analysis of this baseline projection read "Beyond the Baseline: 10 Year Deficits Likely to Reach $5.5 Trillion." As it turns out, the preliminary estimate released today is approximately $7 billion less than the CBO stated last month, according to their most recent Monthly Budget Review. Now they are reporting that the federal government incurred a deficit of $415 billion in FY2004.

This preliminary deficit figure is about $41 billion more than the FY2003 deficit, and 3.6 percent of the national Gross Domestic Product (GDP). Although it was reported that annual receipts rose by approximately 5.5 percent, they remain about 7 percent below their peak level in FY2000. And, according to the monthly review, individual income tax receipts remain approximately 25 percent below their peak in 2000. The drop in those receipts can be attributed to the recession, the decline in the stock market, and the Bush administration's tax cuts, the most recent of which were passed last week in a $146 billion package.

Interestingly, over half of the increase in receipts for FY2004 came from corporate income taxes, which ended up totalling approximately $57 billion more than they did in 2003. Federal income taxes paid by corporations can effectively serve to offset government outlays, and can bring down the budget deficit. Despite this fact, a study released in late September by the Institute on Taxation and Economic Policy (ITEP) and Citizens for Tax Justice (CTJ) found that between the years of 2001 - 2003, 275 of the nation's largest companies did not pay their fair share of income taxes; in addition many received excessive tax rebate checks.

A copy of the ITEP/CTJ report can be found here. Perhaps if corporations paid their fair share of taxes, and if federal legislation stopped handing out so many corporate tax breaks, we would see a decline in the deficit, which has been rising consistently since 2000.

Note: The figure $415 billion is the preliminary estimate for the national deficit; the Department of the Treasury will release the actual figure later this month.

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Economy and Jobs Watch: The Lost Years -- by the Numbers

Over the past 4 years there has been a dramatic shift in the nation's fiscal policy. Has the new strategy worked? The numbers indicate it has not.

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Deficit Hits All-time High, Many Corporations Don't Pay Fair Share

Washington, DC, Sept. 22, 2004--The result of recent tax policy choices is that the 2004 deficit has reached an all-time high of $422 billion dollars. The Congressional Budget Office reported this month that only 11% of the FY 2004 deficit was due to cyclical factors, while 89% of the deficit was result of federal policy decisions. Not only is the current deficit the highest it has ever been in dollar terms, but in a recent analysis, OMB Watch Staff Economist John Irons projected that the deficit will reach $5.5 trillion over the next ten years. In addition, a new study released today by the Institute on Taxation and Economic Policy (ITEP) finds that many of the country’s biggest corporations are not paying their fair share of federal income taxes.

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Economy and Jobs Watch: Cyclically Adjusted Deficit Reaches Record High

The cyclically adjusted deficit -- that is, the deficit adjusted to remove economic fluctuations -- reached an all-time high of $374 billion in 2004 according to a new report by the Congressional Budget Office. As a share of the overall economy, the cyclically adjusted deficit at 3.2 percent of GDP is at its highest levels since the early 1990's -- and has been exceeded in only 7 of the last 42 years (see chart below.)

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Beyond the Baseline: 10 Year Deficits Likely to Reach $5.5 Trillion

Deficits not "cut in half" in 5 years.

The Congressional Budget Office's (CBO) September 2004 "The Budget and Economic Outlook: An Update" shows a baseline projection of a $422 billion deficit for 2004, and $348 billion for 2005. The 10-year baseline projections show a $2.3 trillion deficit over the next ten years; however, as the report notes, the baseline is not intended to be a good predictor of actual budgetary outcomes. A better predictor of budget deficits under "current policy" would put the deficit for 2005 at $405 billion and the 10-year deficit over $5.5 trillion.

With the increase in retirees necessitating increased Social Security and Medicare expenditures, the situation is not projected to improve after 2014 either, unless, of course, the direction of current policy is significantly changed. The CBO's report demonstrates that freezing discretionary spending will not solve the deficit problem; and that not extending the Bush tax cuts helps more, but also won't completely solve the longer term problem.

As the CBO put it "[e]ven if the economy grows more rapidly than projected, significant long-term strains on the budget will start to intensify within the next decade as the baby-boom generation begins to reach retirement age." Download full report (.pdf)

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Watcher: September 7th, 2004

Federal Budget

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