Swinging With The Federal Deficit

The Congressional Budget Office released its Monthly Budget Review on Thursday. As expected based on data from the Treasury, the estimates suggest a likely reduction -- to somewhere between $325-350 billion -- from the CBO's forecast for the year. There will be lots of talk in the media about whether these estimates mean that the Bush tax cuts "worked" -- and you can count on lots of creduluous reporting of silly Laffer curve claims by "snake-oil salesmen". Here are some thoughts about all this, in no particular order:

1. It's certainly good news that revenues are up, and the expected deficit will likely fall.
   
2. By all accounts, the improvement is a short-term phenomenon (even though I hope it's not).
   
3. The Bush Administration's initial deficit forecast of $427 billion was widely believed to be deliberately inflated in order to make any reductions look bigger (compared to CBO's $400 billion).
   
4. We still have a structural budget deficit, which is to say that current revenue policies for the future aren't sufficient to pay for current spending policies for the future.
   
5. Republicans want to increase that structural deficit by making the 2001 and 2003 tax cuts permanent.
   
6. That structural deficit looks smaller than it is, because there is a broad consensus that the Alternative Minimum Tax needs to be repealed or otherwise fixed. The CBPP estimates that together with making the 2001 and 2003 cuts permanent, AMT repeal would add almost $1.2 trillion dollars to the federal debt over the next decade.
   

These are the central facts people should pay attention to, not year-to-year swings in budget deficits.