by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Start with the good news. The federal budget is still bleeding red ink, but the hemorrhaging is occurring at a slower rate.
The nonpartisan Congressional Budget Office recently updated the federal government’s fiscal report card through May. As of the first eight months of the 2014 fiscal year, which began last October, the budget deficit ran $439 billion, $188 billion less than the same eight-month period a year ago.
This 30% decline was due to a combination of higher receipts (up 7%) and lower outlays (down 2%). Most of the gain on the revenue side came from greater amounts of cash withheld from paychecks that cover wages and salaries: up $76 billion, or 6%. Estimated tax payments also rose by $19 billion, or 5%, while revenues were further boosted by a decline of $1 billion, or 1%, in income-tax refunds.
The greater tax-take from personal income was due mainly to an expanding economy, but was no doubt partly due to the hike in rates on upper-income brackets initiated early last year. Also, growth in taxable profits boosted corporate income taxes: up $21 billion, or 15%. …
… NOW FOR THE BAD NEWS on the budget. Starting in fiscal 2016, deficits should start to widen again, adding to an already heavy debt burden that could eventually become too burdensome to be sustained.
In its April update on the 10-year outlook, the CBO warned that “if current laws do not change, the period of shrinking deficits will soon come to an end.” From a projected fiscal 2015 low of $469 billion, deficits of $1 trillion should be the norm by 2022. The reasons: “the aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt.”