Outside the Beltway

CBO: October Monthly Budget Review

Steve Verdon · Thursday, October 19, 2006 · 2 comments

The Congressional Budget Office’s Monthly Budget Review for October had some good news.

CBO estimates that the federal budget deficit was about $250 billion in fiscal year 2006, around $68 billion less than the shortfall recorded in 2005. Relative to the size of the economy, that deficit was equal to 1.9 percent of the gross domestic product (GDP), down from 2.6 percent in 2005. This estimate is based on data from the Daily Treasury Statements and CBO projections; the Treasury Department will report the actual deficit for fiscal year 2006 later this month.

However, this good news appears to be due more to the fact that the economy is growing than to fiscal restraint as outlays were up 6% compared to September of 2005. Granted there were some “technical reasons” for this growth, but even removing these factors outlays were still 4% in September 2006 than in September 2005. And for the whole year outlays were up 7.5%.

I have no doubt that Bush will take credit for this decline in the deficit (both in absolute numbers and as a percentage of GDP), but in reality he did damned little since it was the economic growth that was the major reason for this decline. One could say it was the tax cuts that lead to this kind of economic growth, but at best the evidence for this argument is weak. And while this is indeed a short term improvement, there are still substantial long term fiscal imbalances that neither Bush, the Republicans nor the Democrats seem interested in solving.