Wall Street Journal
Thursday January 24, 2008 Pg A16
The Congressional Budget Office yesterday estimated that the federal budget deficit will rise this year for the first time since 2004, and the explanation is no surprise: Revenue growth is slowing as the economy slows, while spending has begun to pick up again.
CBO forsees a fiscal 2008 deficit of $219 billion, or about 1.5% of GDP, and up about $65 billion from what the CBO projected as recently as last August. Most of the change from August is due to the one-year Alternative Minimum Tax fix passed in December - the previous "baseline" asumed 23 million new AMT victims would be welcomed into the fold this year. A smaller piece of the shortfall is due to lower projections for economic growth this year.
We should remind readers that back in 2004 CBO projected a $286 billion deficit for 2008, by that yardstick, $219 billion is an improvement. Back then, the CBO also projected some $200 billion less in corporate and personal income taxes than we actually saw, due mostly to better-than-expected growth after the 2003 tax cuts.
By the way, that $219 billion doesn't include any "stimulus" package. As we've seen since 2003, tax cuts on capital and marginal income rates can have a salutary effect on the deficit over time by helping to promote growth. The current Beltway mix of more spending and tax "rebates" will do very little for growth and thus have virtually no revenue feedback effect. Don't expect anyone in Washington to mention that while loudly deploring a higher deficit.