CHN: Budget Deficit May Be Larger than Projected

Debate to Make Tax Cuts Permanent Continues
Leading budget experts have nearly doubled the projected budget deficit for the current fiscal year; the announcement came yesterday, April 25, just one week after the House approved legislation (H.R. 586) to make permanent the tax cuts contained in last year’s $1.35 trillion tax package. Earlier Congressional Budget Office (CBO) predictions of the budget deficit for fiscal year 2002 were around $46 billion, but because individual tax receipts are currently $40 billion below projections, experts are now saying that the projected deficit could be $30 billion to $70 billion higher than originally thought. A decline in tax revenue could mean that both the CBO and the Office of Management and Budget (OMB) would alter next summer’s budget projections to reflect far bleaker 10-year budget forecasts.

While the new estimates are preliminary, many economists and advocates believe that a deeper deficit could influence current congressional debate on permanently extending last year’s tax cuts, in addition to elevating budget and tax issues in next fall’s congressional elections. The April 18 House vote (229-198) to extend the tax cuts was highly partisan, and the measure is expected to die in the Democrat-controlled Senate. One Republican – Constance Morella (MD) – voted against the bill, while nine Democrats crossed party lines to vote for the measure. Under current law, all tax provisions enacted in last year’s package will expire by December 31, 2010.

The House-passed bill would lower all income tax rates and gradually remove the estate tax. While Republicans have been outspoken in their support for the legislation, Democrats have voiced concerns that such a measure would ultimately force the government to use Social Security funds to finance other programs – particularly as budget forecasts worsen. Senate Majority Leader Tom Daschle (D-SD) has vowed not to bring up legislation that would make all the tax cuts permanent; however, he has agreed to take up another House-passed measure – HR 8 – that would permanently repeal the estate tax. The bill is expected to come up in the Senate by June 28, before the Independence Day recess.

Budget and Appropriations