Surprise tax revenue surge will shrink federal deficit

$100 billion trim foreseen

other problems still loom, many analysts caution


WASHINGTON - For the first time since President Bush took office, an unpredicted leap in tax revenues is about to shrink the federal budget deficit this year by nearly $100 billion.

White House officials plan to announce today that the deficit for fiscal 2005, which will end in September, will be far lower than the $427 billion they estimated in February.

Bush plans to hail the improvement at a Cabinet meeting today and point to it as a validation for his argument that tax cuts have stimulated the economy and will help pay for themselves.

Based on revenue and spending data through June, the budget deficit was $251 billion for the first nine months of fiscal 2005, which was $76 billion lower than the $327 billion gap recorded at the corresponding time a year earlier.

The Congressional Budget Office estimated last week that the deficit for the entire fiscal year could be "significantly less than $350 billion, perhaps below $325 billion." Last year's deficit was $412 billion.

The big surprise this year has been tax revenues, which are running nearly 15 percent higher than in 2004. Corporate tax revenues have soared about 40 percent, after languishing for four years, and individual tax revenues also have climbed.

Many independent analysts cautioned that the improvement could prove ephemeral and that it did little to eliminate much bigger fiscal problems just over the horizon.

For one thing, analysts said, federal spending has continued to climb rapidly, rising about 7 percent this year.

Despite cutbacks in many domestic government programs, spending has surged for the war in Iraq and for certain benefit programs providing health coverage.

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