NCPA - National Center for Policy Analysis


January 17, 2007

The myth persists that the federal budget deficit is "surging" or ballooning or something terrible -- giving ammunition to those in Congress who want a tax increase. 

Here's the real story, according to the Wall Street Journal:

  • The deficit has in fact declined by some $165 billion over the past two fiscal years, and according to the most recent data has continued to fall in the first quarter of fiscal 2007.
  • The latest Treasury estimates for January show that tax receipts in December were $18 billion higher than a year earlier, helping to boost the budget surplus for the month to $40 billion, up from $11 billion a year ago.

December is typically a good month for revenues due to year-end tax payments.

  • Meanwhile, for the first three months of fiscal 2007 through December, revenues climbed 8.1 percent, building on double-digit revenue increases in the previous two years.
  • Corporate income taxes were up a remarkable 22.2 percent in the first fiscal quarter, showing that the government continues to grab a nice chunk of the rising business profits that so many of our politicians like to deplore.
  • Individual income taxes rose 8.8 percent, thanks to strong wage and salary growth; much of this revenue comes from "the rich."

In the most surprising budget news, federal spending was nearly flat in the first fiscal quarter: 

  • This was despite a 22.1 percent increase in Medicare spending due largely to the new prescription drug benefit, and a 10.7 percent increase in defense. 
  • Those increases were offset by lower spending for flood insurance and disaster assistance compared with the peak of post-Katrina payments a year ago. So the first quarter deficit was $85 billion, down sharply from $119 billion a year earlier.

Source: Editorial, "Surging Revenues," Wall Street Journal, January 17, 2007.

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