Deficit drops as revenues climb

The federal government recorded a $247.7 billion deficit for the fiscal year that ended Sept. 30, the Treasury Department announced Wednesday, marking a 22.3 percent drop from last year and the lowest budget gap in four years.

Overall spending increased by 7.4 percent to about $2.65 trillion in fiscal 2006, but revenues went up even more sharply, by 11.8 percent, fueled by higher-than-expected growth in individual and corporate income tax receipts.

President Bush and GOP leaders claimed credit for putting in place tax cuts that spurred economic growth. "Good tax policy has a lot to do with keeping the economy strong," Bush said, adding that he would continue to urge Congress to make his tax cuts permanent.

The new figures are in line with the Congressional Budget Office's $250 billion deficit estimate released late last week and are down significantly from earlier estimates this year from both the non-partisan CBO and the Office of Management and Budget. In February, OMB predicted a $423.2 billion fiscal 2006 deficit.

The new estimates show Bush has exceeded by three years his target of cutting the deficit in half within five years. That goal was announced in early 2004, when the White House predicted a $521 billion deficit for that year, although the eventual figure was more than $100 billion less than that.

"Republicans have cut the deficit in half three years ahead of schedule because they know that tax relief fuels America's economy," House Speaker Dennis Hastert, R-Ill., said in a statement.

But Democrats argued it was a familiar Bush tactic of announcing artificially high deficit forecasts, only to take credit later when the numbers seemingly show a drop.

"No one should be fooled by the game being played here. Cutting the deficit in half from an intentionally inflated high point is a misleading goal and certainly no measure of success," Senate Budget ranking member Kent Conrad, D-N.D., said in a statement.

"They've cherry-picked a high point that never actually occurred," said Robert Greenstein of the liberal-leaning Center on Budget and Policy Priorities. He added that today's results were likely to be "a temporary blip" followed by larger deficits next year and beyond if Bush's tax cuts are extended and coupled with soaring entitlement program costs precipitated by baby boomers' retirement.

The $247.7 billion figure is the lowest deficit since the $157.8 billion recorded for fiscal 2002, which followed four years of budget surpluses. The deficit reached a high point of $413 billion in 2004 before dropping to $318.7 billion last year.

The fiscal 2006 deficit, when measured as a percentage of the economy, totals about 1.9 percent of gross domestic product, down from 2.6 percent last year.

CBO Acting Director Donald Marron in August said deficits of around 2 percent of GDP can be "sustained indefinitely." But CBO also predicted deficits were likely to eclipse that figure over the next decade if the tax cuts were extended, combined with politically popular but costly actions such as providing relief from the alternative minimum tax.