- The Washington Times - Sunday, October 8, 2006

The federal deficit is expected to be lower than projected for fiscal 2006 when official numbers are released this week, which likely will lead to finger-pointing about why earlier estimates were so off target.

Income and corporate taxes have surged so much that the Treasury Department is expected to announce that the federal deficit for the fiscal year, which ended Sept. 30, has declined to about $250 billion — almost $175 billion less than the administration had predicted in February.

It also is about $68 billion less than the 2005 deficit, and although still the seventh highest annual shortfall in history, it gives the Bush administration and congressional incumbents something to talk about this campaign season.

“They overstated the deficit on the front end to claim success later in the year,” Sen. Kent Conrad of North Dakota, the top Democrat on the Senate Budget Committee, said in July, according to McClatchy newspapers.

The projections put the administration close to meeting its goal of cutting the 2004 deficit in half, three years ahead of schedule.

“If you look at the numbers this year, they are already very close to the president’s goal that he set out in 2004,” Rob Portman, director of the Office of Management and Budget, told reporters Friday after the Congressional Budget Office gave its unofficial $250 billion estimate. The Treasury Department’s figure, expected to be released this week, is considered the official tally.

Overall, spending increased by $185 billion, but revenue grew even faster — by $253 billion, according to the CBO — accounting for smaller deficit. That’s a revenue increase of more than 11 percent over 2005.

The driving force has been a 27 percent increase in corporate income taxes, coupled with a 13 percent increase in individual income taxes.

“We’ve seen this recovery be characterized by corporate profitability that is very strong, so the economic forecast, I think, is hard to do, and the government analysts are not the only ones who didn’t predict profitability staying this strong this long,” said former CBO Director Douglas Holtz-Eakin, who is with the Council on Foreign Relations.

“The White House is often accused of starting with a big deficit and having it come down later,” he said. “The reality is the CBO, which has no particular interest in highballing the deficit and then having it come down, has about the same difficulty in forecasting the deficit as the Treasury did.”

In the past 25 years, the February estimates have been off by an average of nearly $70 billion, or 2.2 percent.

On four occasions in that period, the estimates were off by at least $100 billion. They were off by 15 percent or more for three straight years during the Reagan administration.

The errors aren’t always good news — the 1983 and 1985 estimates were more than $100 billion higher than actual revenues.

And although this year’s smaller deficit may sound positive, Mr. Holtz-Eakin said the long-term budget problems — a fix to the alternative minimum tax and Medicare doctor fees, the costs of the war in Iraq and the impending retirement of the baby boomers — still remain.

“Nothing has changed on the fundamentals,” he said.

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