ASSOCIATED PRESS
The federal deficit for 2007 will be somewhat lower than it was last year, “but the budget outlook for the long term remains daunting” because of steadily growing health care costs, the Congressional Budget Office reported yesterday.
The deficit for the fiscal year ending Sept. 30 will be about $158 billion, or $90 billion less than the deficit recorded for 2006, the nonpartisan agency reported. The revised figure is about $19 billion below the deficit the Congressional Budget Office (CBO) projected for fiscal 2007 on March 1.
Higher-than-expected tax revenue is the main reason for the improved numbers, CBO said.
“The long-term fiscal outlook continues to depend primarily on the future course of health care costs,” CBO said in its update. “Although there is some risk that problems in the housing market and disruptions in financial markets may spread and impair economic growth,” it said, “the most likely scenario is that economic performance will remain sound.”
The update said inflation and unemployment are likely to remain comparatively low in the coming year. But Peter Orszag, the CBO director, said the nation continues to put itself at financial risk by allowing government health care costs to outstrip Americans’ income year after year.
“We are on an unsustainable fiscal path,” Mr. Orszag told reporters, mainly because of steady rises in the costs of Medicare and Medicaid. The two programs consume 4.6 percent of the U.S. economy, he said, a figure that will rise to 5.9 percent by 2017 under current projections.
The proportion will continue to climb in future decades unless federal policies change, Mr. Orszag said. “We have done much too little” to address the problem.
Mr. Orszag said the near-term economic outlook is “particularly clouded right now” because of a turbulent stock market and problems with subprime mortgages. But his agency does not see such problems preventing “continued, solid economic performance.”
The recent growth in government revenue comes mainly from individuals rather than corporations, which accounted for unexpected revenue increases earlier this decade, Mr. Orszag said. Wealth has become more concentrated among the highest income earners, he said, and those people pay taxes at the highest marginal rates.
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