The U.S. has run deficits each fiscal year since 2002 amid increased defense spending after the September 2001 terror attacks, tax cuts and rising costs for social services such as Medicare. The government reported annual budget surpluses from 1998 to 2001.
Bush and his Republican allies can claim bragging rights for bringing the budget down in time for midterm elections, said Michael T. Darda, chief economist at MKM Partners LLC in Greenwich, Connecticut. Darda credits economic growth brought on partly by the 2003 tax cuts, which reduced the tax rate on capital gains to 15 percent from 20 percent and cut the rate on corporate dividends to 15 percent from 38.6 percent.
After the 2003 tax cuts, ``that's when the economy really kicked into high gear,'' he said. The White House, he said, is ``definitely entitled to crow a little bit. You'd think they'd do a victory lap.''
Not Assured
A huge decline in the deficit next year isn't assured. One reason for the surge in tax revenue this year was a 10 percent increase in compensation in last year's fourth quarter because of large year-end bonuses, which probably won't be repeated this year, Lehman's Harris said.
There is a danger that a shrinking deficit may lessen the resolve in Congress to restrain spending, or that expenditures required by law will erase any gains. Defense spending is up because of the wars in Iraq and Afghanistan, and another supplemental war spending request is expected later this year. Congress is considering an extra $1 billion for veterans health care, Medicare expenses are rising because of an aging population, and interest rate increases are raising the government's debt costs.
Government spending rose 9.2 percent in June compared with the same month a year ago, the Congressional Budget Office said July 7.
So come the mid term elections... *IF* this doesn't go to pot the President could have a bone for all the Fiscal conservatives in the house
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