September Will Tell the Tale on Federal Deficit Trend

The first nine months of the fiscal year (Oct. 2005 through June 2006) pointed to a possibly dramatic lowering of the deficit to possibly as low as $260 billion, especially because tax receipts were up almost 13% compared to the same nine months of the previous fiscal year.

Even though the 11-month deficit is $304 billion, the Congressional Budget Office still believes that $260 billion will be the end result. But based on looking at the latest monthly report from the Treasury, there are reasons to doubt it (note that the report presents fiscal 2005 first, followed by fiscal 2006):

• After the first nine months of double-digit increases, combined July and August 2006 receipts were only 5.4% higher than July-August 2005.
• Fortunately, spending was only up 2.3% during those two months, but the mad dash to spend unappropriated money that traditionally occurs in September shouldn’t give anyone cause for optimism.
• I would estimate that September receipts will have to be in the neighborhood of $270 -$280 billion to result in a $44 billion surplus for the month, and I would rate that a long shot.

There is a point at which, absent a policy change of some kind, the double-digit growth in revenues won’t be sustainable. Making the Bush tax cuts of 2001 and 2003 permanent, once and for all, would probably be the tonic that would buy us at least a couple more years of double-digit revenue growth.

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Related Post:

July 18, 2005 — Four Reasons NOT to Be Impressed with the “Falling Deficit”