What's not accurate?
Tax Receipts Exceed Treasury Predictions
Early Surge Lowers Deficit Projections
By Jonathan Weisman
Washington Post Staff Writer
Thursday, May 5, 2005; Page E01
After three years of rising federal budget deficits, a surge of April tax receipts brought unexpected good news to fiscal policymakers -- the tide of government red ink appears to be receding.
The Treasury Department this week reported there would be a $54 billion swing from projected deficit to surplus in the April-to-June quarter, after an unanticipated gush of tax payments poured into the Treasury before the April 15 deadline. That prompted private forecasters to lower their deficit projections for the fiscal year that ends in September.
Budget analysts inside and outside the government said the positive turn is likely to be short-lived. Indeed, after a four-year absence, the Treasury Department announced yesterday it is considering reissuing its 30-year Treasury bond to help finance long-term government debt, jolting the bond markets and pushing down the price of existing 30-year securities.
But in the short term, many forecasters said the budget deficit appears to have crested.
"I think it has turned the corner," said David Wyss, chief economist at Standard & Poor's, the credit rating agency. "My guess is 2004 will have been the worst year."
For that fiscal year, the government recorded a $412 billion deficit, the largest ever in nominal dollar terms, although not as large as some of the deficits of the 1980s when measured against the size of the economy. The 2004 mark was up from 2003's $378 billion deficit, which topped 2002's $158 billion deficit.
In January, Bush administration officials projected that the streak would continue, with a deficit of $427 billion for the fiscal year that ends Sept. 30. But that estimate was widely regarded as inflated and many forecasters believed the total would be more like $400 billion.
April, however, turned out to be a far better month than anticipated. Taxpayers were confronted with unexpected tax bills, many from capital gains and the alternative minimum tax, a parallel income tax system designed to hit the rich but that is increasingly pinching the middle class. The Treasury announced this week that it will repay $42 billion in federal debt in the third April-to-June quarter, instead of borrowing $12 billion.
Wall Street analysts reduced their deficit forecasts this week, from around $400 billion to around $370 billion. In nominal dollar terms, that would still be the third-highest deficit on record. Even measured against the size of the economy, "it's still a high number," said Brian Bethune, director of financial economics at Global Insight Inc., a Massachusetts forecasting firm. "It needs to come down."
One factor should help in the short term: Seven months into the fiscal year, Congress is only now passing the $82 billion emergency war spending bill for fiscal 2005, which means that much of the money will be spent in 2006. That should reduce the 2005 deficit while bringing down war costs next year. Wyss said the deficit should continue to fall in 2006 and 2007.
"A month ago, I would have told you the budget numbers were on track for $400 billion. To get an adjustment this quickly would suggest a huge surprise," said Edward F. McKelvey, an economist and federal budget analyst at Goldman Sachs & Co.
Few economists say the U.S. government is out of the woods. One of the reasons for the turnaround, the alternative minimum tax, should be reduced or eliminated before it starts impinging on economic growth, Bethune said.
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http://www.washingtonpost.com/wp-dyn/content/article/2005/05/04/AR2005050402134.html
Higher tax receipts cut deficit, analysts say
Friday, July 08, 2005
Andrew Taylor
Associated Press
Washington - Higher- than-expected tax receipts and the steadily growing economy have combined to produce an improved picture for the federal budget deficit, congressional analysts say.
The deficit for the current budget year, which runs through Sept. 30, should be "significantly less than $350 billion, perhaps below $325 billion," according to the Congressional Budget Office. The agency produces nonpartisan estimates for Congress and will put out a full update Aug. 15.
Thursday's new figures come as the White House is to release its midyear budget review July 13. Administration figures are also expected to show significant improvement from the $427 billion current-year deficit it predicted in January.
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Economy shows solid growth
Updated: 06/29/2005 10:17:25 AM
By JEANNINE AVERSA
AP Economics Writer
WASHINGTON (AP) - The economy logged a solid 3.8 percent growth rate in the first quarter of 2005, a performance that was better than previously thought and a fresh sign the expansion is on firm footing.
The new reading on gross domestic product, released by the Commerce Department on Wednesday, marked an improvement from the 3.5 percent annual rate estimated for the quarter just a month ago and matched the showing registered in the final quarter of 2004.
GDP, the broadest gauge of the economy's health, measures the value of all goods and services produced within the United States.
Stronger spending on housing projects, more investment by business in equipment and software, and a trade deficit that was less of a drag on economic growth all played a role in the higher first quarter GDP estimate.
The first-quarter's showing was slightly better than the 3.7 percent growth rate that economists were forecasting before the report was released.
"It was a solid quarter, particularly in the face of high and rising energy prices," said Mark Zandi, chief analyst at Economy.com. "It illustrates the resilience of the economy and the durability of the current economic expansion."
To keep the economy and inflation on an even keel, the Federal Reserve has boosted short-term interest rates eight times - each in quarter-point moves - since June 2004. Another bump-up is expected when the Fed wraps up a two-day meeting on Thursday.
An inflation gauge tied to the GDP report and closely monitored by the Fed showed prices - excluding food and energy - rising at a rate of 2 percent in the first quarter. While that was slightly lower than the previous estimate of a 2.2 percent rate for the quarter, it was up from the fourth quarter's 1.7 percent rate of increase.
While Republicans and Democrats might have different takes on how various parts of the economy are faring, the Bush administration pointed to the latest GDP report as evidence that economic activity is improving. "The economy is showing solid and sustained growth and job creation," White House press secretary Scott McClellan said. "The policies that we have put in place are working. Our economy is growing stronger."
Although economic activity is solid, job creation is choppy. Employers boosted payrolls by just 78,000 after a hiring spurt of 274,000 in April. May's job gain was the weakest in almost two years. Economists offered various reasons for May's slower job growth, including the toll of high energy prices.
In recent days, oil prices surged to a new record-high of $60.54 a barrel. Economists are trying to gauge the impact that gyrating oil prices will have on the job market and the overall economy.
High energy prices have forced many economists to lower their projections for economic growth.
The economy in the current April-to-June quarter is expected to expand anywhere from 2.6 percent to 3.8 percent. Some earlier forecasts had put growth for the quarter at a pace of around 4 percent. Projections for the third quarter range from a 2.7 percent to a 3.5 percent pace.
In the first quarter, though, spending and investment in a variety of areas fared well despite high energy prices.
Spending on housing projects sizzled at a 11.5 percent growth rate in the first quarter, compared with a 3.4 percent pace in the fourth quarter. It marked the biggest increase since the second quarter of 2004.
Fed Chairman Alan ΒΌ has talked about "froth" in the booming housing market. Although he doesn't believe a national bubble has formed that could pop and cause house prices to fall, he has raised concerns about local markets.
Low mortgage rates, which have powered record-high home sales for four years in a row, are helping to keep housing activity brisk.
Meanwhile, business spending on equipment and software increased at a 6.1 percent pace. That was better than the previous estimate but down from the red-hot pace seen in the fourth quarter as companies rushed to take advantage of tax deductions to encourage sales of business equipment. These tax provisions expired at the end of last year.
Consumer spending, which accounts for roughly two-thirds of all economic activity, grew at a rate of 3.6 percent in the first quarter. That was the same as a previous estimate but down from a 4.2 percent growth rate in the fourth quarter.
On the trade front, the deficit shaved 0.6 percentage point off of GDP in the first quarter, an improvement from the 0.7 percentage-point reduction previously estimated.
One measure of after-tax profits in the GDP report showed profits growing by 1.2 percent in the first quarter from the previous quarter. That was slightly better than an earlier estimate but down from a 12.5 percent increase in the fourth quarter.
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