TAX REVENUE TO the federal Treasury has surged this year, and as a result the projected budget deficit is down significantly. The Congressional Budget Office's latest estimate, released this week, is for a fiscal 2005 deficit of $331 billion, compared with the March estimate of more than $390 billion. This development -- which would result in a deficit $81 billion less than the 2004 total -- is unambiguously good news. The question is whether it can be counted on to last: Will tax receipts continue their rise, even if on a slightly less spectacular slope? The Bush administration believes they will. Last month it released projections anticipating extra tax revenue averaging $80 billion annually for the next five years. But as the CBO detailed in Monday's report, there is scant basis for relying on that rosy scenario -- and every reason to believe the long-term deficit picture is as bleak and daunting as ever.
As the CBO notes in its opening words, "The budget outlook for 2005 has improved noticeably" in the past five months, "but the longer-term outlook has changed little." Projected deficits over the next decade, it says, "are essentially unchanged." That, according to the CBO, is because "the recent unanticipated strength in tax collections" can't be counted on to last. Though the precise reasons for the unanticipated surge in tax receipts won't be known for some time, the CBO said it expected only about one-fourth of the increase to be permanent.
In large part because it doesn't count on the revenue boom lasting, the CBO's longer-term analysis is more grim than the administration's. Over the next five years, it estimates, the government will take in about $300 billion less in tax revenue than the administration expects. Where the administration forecasts deficits falling as a share of the economy to 1.1 percent by 2008, the CBO puts that figure at 2.3 percent. More worrisome, between 2006 and 2015, assuming that the administration's tax cuts are made permanent, that changes are made to deal with the alternative minimum tax, and that the costs of the war in Iraq and Afghanistan begin to slow, deficits will total an additional $4 trillion, according to an extrapolation of the CBO numbers by the liberal Center on Budget and Policy Priorities. Under this scenario, deficits will hover around $400 billion for much of that time and break the $500 billion barrier by 2015.
None of this is surprising -- at least it shouldn't be. And it could be overly optimistic: The Concord Coalition budget watchdog group put the "plausible baseline" deficit over the next 10 years at $5.7 trillion, mostly because it assumes discretionary spending will grow at a faster rate than inflation -- not, given recent congressional performance, an outlandish scenario. The point, though, isn't the precise number of trillions being added to the debt; it's that deficits aren't going to somehow magically evaporate. This week's good news doesn't mean tomorrow's problems aren't real, large and fiscally menacing.