The Congressional Budget Office has released new deficit numbers for the fiscal year 2007, which ends on Sept. 30th. From CBO:
The nation’s budget outlook for fiscal year 2007 has improved in the five months since the Congressional Budget Office (CBO) released its previous set of baseline projections, but prospects for the long term remain daunting. CBO now expects that the budget deficit for 2007 will total $158 billion-$19 billion lower than the estimate published in March and about $90 billion less than the budget shortfall recorded last year. Relative to the size of the economy, the 2007 deficit is expected to equal 1.2 percent of gross domestic product (GDP), down from 1.9 percent in 2006. Over the longer term, however, the federal budget continues to face substantial fiscal challenges, driven primarily by rising health care costs.
The publication goes on to mention that higher-than-expected individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. collections are to credit for the lower deficit. Rapidly growing corporate taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. revenues had been the main driver of the surge in revenue since the recessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years. six years ago.
The CBO also expects a budget surplus by FY 2012 when the tax cuts passed in 2001 and 2003 are set to expire. However, that hinges on what fraction of the tax cuts are made permanent, and if they’re not fully extended, which parts of the tax cuts are extended. It is likely that the politically popular provisions of the tax cuts (like the child tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. and elimination of the marriage penaltyA marriage penalty is when a household’s overall tax bill increases due to a couple marrying and filing taxes jointly. A marriage penalty typically occurs when two individuals with similar incomes marry; this is true for both high- and low-income couples. on the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. ) would produce the least feedback in terms of economic growth. The rate cuts, which tend to be the least politically popular part of the cuts, would likely provide the most feedback, although the feedback is nowhere close to 100 percent of the tax cut.
To read the full report, click here. One important note is that CBO’s scores for all years assume current law baseline and thereby ignore any tax cuts or tax hikes that could change the deficit numbers. This includes the assumption of no patch to the Alternative Minimum Tax.
For more on dynamic scoringDynamic scoring estimates the effect of tax changes on key economic factors, such as jobs, wages, investment, federal revenue, and GDP. It is a tool policymakers can use to differentiate between tax changes that look similar using conventional scoring but have vastly different effects on economic growth. and the Laffer Curve, check out our previous blog posts on the issue here, here, and here.Share