Budget Deficit Falls As Income Gap Widens

The Bush administration reported Thursday that the federal budget deficit fell to $162.8 billion in the just-completed budget year, the lowest amount of red ink in five years.

The administration credited the president's tax cuts for helping generate record-breaking revenues but warned of an approaching "fiscal train wreck" unless Congress deals with unsustainable growth in Social Security, Medicare and Medicaid.

President Bush, appearing with his economic team to trumpet the news, noted that the deficit turned out to be $81 billion lower than it was projected to be in February. He said the deficit represents 1.2 percent of gross domestic product - less than the average of the last 40 years.

"By keeping taxes low we can grow the economy, and by working with Congress to set priorities we can be fiscally responsible and we can head toward balance," Mr. Bush said after the meeting across the street from the White House. "And that's exactly where we're headed."

The deficit for the 2007 budget year that ended on Sept. 30 was 34.4 percent lower than the $248.2 billion deficit recorded in 2006, reflecting faster growth in revenues than in government spending.

Administration officials said the government was on track to accomplish Mr. Bush's goal of eliminating the deficit by 2012. But Democrats said the improvement in the deficit this year did not mask the fact that Mr. Bush's economic policies transformed the budget surpluses of the Clinton years into record deficits and an unprecedented increase in the national debt.

The debate over the president's signature tax cuts and their effect on the economy are certain to be played out in the coming presidential campaign. Republican candidates are vowing to make permanent Mr. Bush's tax cuts, which are due to expire at the end of 2010; Democrats want to roll back the tax cuts received by the wealthiest taxpayers.

The wealthiest 1 percent of Americans earned a record-breaking 21.2 percent of all income in 2005, according to new data from the Internal Revenue Service reported today in the Wall Street Journal. That is sharply up from 19 percent in 2004, and surpasses the previous high of 20.8 percent set in 2000, at the peak of the previous bull market stocks, the Journal reports.

The bottom 50 percent earned 12.8 percent of all income, down from 13.4 percent in 2004 and a bit less than their 13 percent share in 2000, according to the Journal.

The IRS data go back onto to 1986, but academic research suggests the rich last had this high a share of total income in the 1920s, the Journal reports.

The IRS didn't identify the sources of the increased income for the affluent, the Journal suggests the boom on Wall Street has likely played a part.

Both revenues and spending climbed to record levels in 2007. Spending rose by 2.8 percent to $2.73 trillion while revenues rose by a faster 6.7 percent to a record $2.57 trillion, a gain the administration attributed to the economic stimulus from the president's tax cuts.

"This year's budget results further demonstrate how the president's tax relief, combined with spending discipline, has helped promote a sustained economic expansion, which led to revenue growth and resulted in a declining deficit," said White House budget director Jim Nussle.

But administration officials said while the short-term budget deficit was improving, greater efforts were needed to deal with the budgetary pressures that will arise in future years with the approaching retirement of 78 million baby boomers.

"For the sake of our children and grandchildren, Congress should begin to take action to prevent this fiscal train wreck," Nussle said in a statement accompanying the budget figures.

Senate Budget Committee Chairman Kent Conrad, D-N.D., said that Bush would "go down in history as the most fiscally irresponsible president ever. The fact is that the nation's debt has exploded on his watch - rising by $3 trillion since 2001, to $9 trillion today."

Mr. Bush recently signed into law a measure increasing the government's borrowing ceiling to $9.815 trillion. It was the fifth debt increase of Mr. Bush's presidency. The national debt is the accumulation of the annual deficits.

During the Clinton administration, the federal budget ran a surplus for four consecutive years, something that had not been accomplished for seven decades.

While there were projections that the budget would run up surpluses of $5.6 trillion over the next decade, the bursting of the stock market bubble in 2000, the recession that followed in 2001 and the terrorist attacks, which led to increased military spending to fight wars in Afghanistan and Iraq, pushed the country back into deficit spending.

For 2007, defense spending, including war costs, totaled $529.9 billion, up 6.1 percent from 2006, an increase that outpaced the 2.8 percent rise in overall spending. Paying interest on the national debt also outpaced overall spending growth, rising by 5.9 percent to total $430 billion, making it the fourth-largest spending category.

While the administration contends that Bush's first-term tax cuts helped jump-start economic growth and are contributing to record revenues currently, Democrats dispute that view, saying the tax breaks were tilted to the wealthy and actually have contributed to the record deficits.

The deficit hit an all-time high in dollar terms of $413 billion in 2004 and has been coming down since.

The Congressional Budget Office projects that the deficit will improve further in the 2008 budget year, which began on Oct. 1, projecting a decline to $155 billion before the imbalance starts to rise again in 2009.