WASHINGTON (Marke****ch) -- The Congressional Budget Office on Thursday estimated that the federal deficit will narrow to $260 billion in the current fiscal year, down from $318 billion in fiscal 2005, amid surging tax revenues.
The new figure, contained in CBO's annual summer budget update, is $112 billion lower than the nonpartisan agency's March projection. The $260 billion figure matches an estimate contained in a monthly CBO report released a few weeks ago.
"Higher-than-anticipated revenues, mostly from individual and corporate income taxes, account for the bulk of that improvement," the CBO report said.
CBO said it now expects 2006 revenues to exceed its March forecast by $99 billion.
The 2006 deficit would be equal to 2% of gross domestic product, down from around 2.6% in 2005.
The White House Office of Management and Budget, in its midyear budget review last month, said the federal deficit would likely to fall to $296 billion, or 2.3% of gross domestic product, in fiscal 2006, which ends on Sept. 30.
The White House and Republican lawmakers have hailed recent budget news, arguing that economic growth and stronger-than-expected tax receipts have vindicated President Bush's first-term tax cuts.
The OMB and CBO budget projections "tell the same story," OMB Director Rob Portman told Bloomberg Television. "As the economy has improved, budget deficits have gone down."
For their part, Democrats charge that a $296 billion deficit this late in an economic recovery is nothing for the White House to brag about.
"This year alone, the debt is expected to increase by $557 billion. And under realistic assumptions, the country's total debt is projected to soar to more than $11 trillion by 2011," said Sen. Kent Conrad of North Dakota, senior Democrat on the Senate Budget Committee. "That is occurring at the worst possible time, just as the baby-boom generation begins to retire."
Economists have said this year's surge in tax receipts indeed reflects a strong economy, but they cautioned that the boost isn't fully sustainable.
The CBO sees the deficit rising to $286 billion in fiscal 2007, and projects cumulative deficits of $1.418 trillion from 2007 to 2011. Over the next decade, the agency sees deficits totaling $1.761 trillion.
CBO assumptions
Official CBO projections, under law, can only assume spending and tax policies that are already on the books. That means the long-term projections assumes that war spending will continue at its current pace and that many of Bush's first-term tax cuts will expire.
The CBO projections assume that the U.S. economic growth will slow to a "moderate, sustainable pace" over the next year and a half, expanding at an inflation-adjusted rate of 3% in the second half of 2006 and remaining at that pace through 2007.
The agency also expects consumer spending growth to slow amid a rise in interest rates, higher energy prices and declining growth of house prices. The outlook for business investment, meanwhile, remains "bright," CBO said, citing solid demand for goods and services from domestic and foreign customers.
The CBO noted that businesses are seeking to add capacity and continue to enjoy high profits amid "relatively low" levels of corporate debt.
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Originally Posted by HistoricalDavid 
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