WASHINGTON — A windfall of tax revenue, especially from corporations, has substantially brightened the short-term budget outlook, but beyond this year the deficit is still an unsolved problem, the Congressional Budget Office reported Monday.
For fiscal year 2005, the budget office forecast a $331-billion deficit, in line with the Bush administration's estimate issued in July. That compares with the $364-billion deficit the budget office forecast in March and the $412 billion the Bush administration estimated in February.
Republicans interpreted the report as validating the Bush administration's tax cuts as an engine of economic growth.
"It provides further evidence that the pro-growth policies put in place by Congress and the president are working to strengthen the economy and lower the deficit," said Sen. Judd Gregg (R-N.H.), chairman of the Senate Budget Committee.
But Douglas Holtz-Eakin, the budget office's director, estimated that three-quarters of the revenue increases driving down the 2005 deficit were temporary in nature and not built into the economy.
James R. Horney, a budget expert at the Center on Budget and Policy Priorities, an independent fiscal policy organization in Washington, said the improving economy could not be responsible for the extra tax revenue because the budget office report did not show the economy gaining strength compared with its March forecast.
And many independent analysts worried that the series of reports showing the 2005 deficit shrinking would make Congress less vigilant about further deficit reduction.
"The sun may be shining for now, but there are a lot of dark clouds on the horizon," said Brookings Institution budget analyst Isabel Sawhill. "The long-term budget picture is bad and getting worse."
Sen. Kent Conrad of North Dakota, the ranking Democrat on the Senate Budget Committee, pointed out that the budget office predicted $157 billion in new revenue in the 2006-2010 period, far less than the administration's projection of $406 billion.
"It would be a mistake to rely on this revenue increase carrying forward," he said in a statement.
Rep. John M. Spratt Jr. of South Carolina, ranking Democrat on the House Budget Committee, said the $331-billion fiscal 2005 deficit -- which would be the third-largest ever -- was nothing for the administration to crow about. He noted that the 2005 budget had swung $764 billion in the wrong direction since Bush took office in 2001. At that time, the budget office foresaw a surplus of $433 billion for 2005.
