- The U.S. budget deficit will narrow this year to a five-year low of $158 billion, less than previously estimated, as economic growth bolsters tax revenue, the Congressional Budget Office said.
A 7 percent increase in 2007 government revenue will help reduce the budget shortfall in the fiscal year ending Sept. 30, the nonpartisan CBO said in a statement in Washington. The 2006 budget gap was $248 billion, and today's revision showed an improvement from the CBO's March forecast of a $177 billion deficit this year.
An economic expansion of almost six years is providing a short-term infusion of revenue that's helping offset the cost of the Iraq war.
``There has been some small improvement in the budget deficit,'' CBO Director Peter Orszag said in an interview.
Longer term, the country's fiscal outlook ``remains on an unsustainable fiscal path, and policy action is needed to take us off that path'' as rising health-care costs and a surge of retirees swamp federal programs such as Social Security and Medicare, Orszag said.
Next year, the deficit will probably decline to $155 billion before swelling to $215 billion in 2009 and $255 billion in 2010, the CBO said.
Expand 2.1 Percent
The economy will expand 2.1 percent this year, less than the 2.3 percent growth rate predicted in January, the CBO said. Next year, the economy probably will grow 2.9 percent, little changed from the CBO's prediction in January for 3 percent growth in 2008.
The CBO forecast was completed before the recent subprime mortgage crisis, and the outlook is ``clouded'' because of the resulting market turbulence, Orszag told reporters in Washington. The Federal Reserve on Aug. 17 lowered the short- term interest rate it charges banks in an effort to inject liquidity into money markets and prevent credit from seizing up.
``Our view is that although significant economic risks exist, the most likely scenario is for continued solid economic performance,'' Orszag told reporters.
The White House is less optimistic about the country's fiscal condition. The Bush administration in July said this year's deficit will decline to $205 billion before surging to $258 billion in 2008 as revenue growth slows and costs for funding the war in Iraq mount.
Tax Cuts to Expire
Orszag also told reporters that the estimate takes current law as it is today and assumes that when President George W. Bush's tax cuts expire at the end of 2010, the additional revenue will push the budget into a small surplus. Lawmakers have been debating whether the tax cuts should be extended.
The budget deficit peaked at $413 billion in 2004.
Bush said in a statement that the CBO report is good news for American taxpayers.
``It shows that our government is on a path to meeting the goal I set forth of putting the budget into surplus by 2012,'' he said in a statement. ``Continued spending restraint is a critical element for accomplishing a balanced budget. I again urge Congress to pass spending bills by the end of the fiscal year, without wasteful earmarks, without raising taxes, and in regular order -- one at a time, and on time.''
Representative John Spratt, a South Carolina Democrat and chairman of the House Budget Committee, issued a statement saying: ``While any improvement in the deficit forecast is welcome news, the long-term fiscal picture is still troubling.''
Bush ``continues to advocate more of the same policies that created these deficits,'' Spratt said. ``Even these figures understate the size of the problem because they assume an increasing number of taxpayers will be affected by the Alternative Minimum Tax (AMT). A permanent repair of the AMT could cost as much as $1 trillion over 10 years.''
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