Federal Deficit Shrinks on Stronger Tax Revenues
STEVE INSKEEP, host:
The business news starts with a deficit that's huge, but shrinking.
Today, The White House releases its mid-year budget update, today, and it is likely to project a deficit much lower than expected, which sounds like good news. And now we're going to find out if it really is.
We turn to David Wessel, Deputy Washington Bureau Chief of The Wall Street Journal - regular guest here. David, good morning.
Mr. DAVID WESSEL (Deputy Washington Bureau Chief, The Wall Street Journal): Good morning.
INSKEEP: So, okay, the deficit is lower than expected. That sounds good.
Mr. WESSEL: It is good. The analysts are expecting the Bush administration will project a deficit for this fiscal year, which only has about three months left to run, of about $300 billion. That's a little less than last year, and much less than they had predicted when they put out their budget in February.
INSKEEP: Now, as many people have pointed out, when you're talking about budget deficit projections - and saying that you've met expectations or didn't meet expectations or beat expectations - you can move a few relatively minor numbers around in the federal budget, and utterly change your deficit projection. Did that happen here?
Mr. WESSEL: Well, I think the $300 billion number is pretty hard. After all, we have about nine months of the fiscal year gone, so there's not much maneuvering room for them. Where I think the White House set themselves up with a favorable comparison, was by inflating a little bit the number that they gave in February, what they expected the deficit to be. Their estimate was about $50 billion more than that of the Congressional budget office.
They set it up so they could show progress. There is progress. They're making the progress look a little better than you might have otherwise.
INSKEEP: Am I being too cynical, to say that they then said, several months ago - oh, the deficit is terrible, terrible, terrible - and now that an election is approaching they can say - it's getting better, better, better.
Mr. WESSEL: Well, you can never be too cynical in Washington, and I think that what you said is true. But it is also true that independent, non-partisan analysts are surprised by how much tax revenue is coming in, and so therefore, surprised that the deficit is not bigger.
INSKEEP: Why are tax revenues unexpectedly high?
Mr. WESSEL: Well, that's interesting actually. Tax revenues are unexpectedly high because A) corporate profits have been so strong that companies are paying a lot more in taxes. And because the people at the top of the income ladder are doing so much better than the people in the middle class, and they pay higher tax rates.
INSKEEP: Okay, does this mean that the deficit is no longer such a big problem?
Mr. WESSEL: The deficit isn't a problem today. The economy is doing reasonably well, despite a $300 billion deficit. The problem is in the future. Outside of the president's term, spending on Medicare, Medicaid, Social Security, is growing so fast and so substantially that the deficit will get much, much bigger unless some major sea change hits.
INSKEEP: How are Congress and the president doing right now, on containing spending?
Mr. WESSEL: Well, not very well. Spending so far this year, is up about nine percent. Medicare is up 15 percent over last year, because of the prescription drug bill, and spending on interest is up 22 percent, because the debt is so much bigger and interest rates have gone up.
INSKEEP: Spending on money we already borrowed in past years?
Mr. WESSEL: Absolutely.
INSKEEP: Is that going to be a bigger and bigger slice of the budget as the years go on?
Mr. WESSEL: It will, unless something changes.
INSKEEP: David Wessel of the Wall Street Journal. Thanks very much.
Mr. WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.