Here are the details from the Center on Budget and Policy Priorities based upon a Congressional Budget Office analysis:
New CBO Deficit Estimate Indicates that Without the Tax Cuts, The Budget Would be Balanced, by James Horney, CBPP: The Congressional Budget Office announced on August 4 that it now projects the deficit will be $260 billion for fiscal year 2006... CBO’s projection of the deficit for the current year is $30 billion below the level projected by the Administration when it released its Mid-Session Review of the Budget on July 11. ...
Some may assume that the CBO estimate means that tax revenues are coming in at even higher levels than the Administration assumed just a few weeks ago. Such an assumption, however, would be incorrect... Furthermore, the new CBO estimate indicates that were it not for the tax cuts of recent years, the budget would now be in balance.
- CBO is not projecting that revenues will be higher in 2006 than the Administration projected last month. ... CBO’s projected deficit for 2006 is $30 billion lower than the Administration’s July estimate because CBO estimates that spending will be $30 billion lower this year than the Administration’s estimates showed.
- CBO’s projection that spending in 2006 will be lower than the Administration has estimated is not surprising. ... OMB commonly overestimates current-year spending when issuing its Mid-Session Review. Federal agencies generally report to OMB each June that they will expend more of their funding by the end of the fiscal year than they actually end up doing. CBO’s mid-year estimates more accurately take this factor into account...
- CBO’s deficit estimate of $260 billion in 2006 illustrates one other reality, as well. Based on Joint Committee on Taxation estimates, the tax cuts enacted since January 2001 are costing a total of $258 billion in 2006 (including the increased interest costs of the debt that result from the borrowing that is required to cover the lost revenues). This means that even with the spending for the wars in Iraq and Afghanistan and the response to Hurricane Katrina, the federal budget would essentially be in balance this year if the tax cuts had not been enacted, or if they had been offset by either increases in other taxes or cuts in programs, as would have been required under the Pay-As-You-Go rules that tax-cut proponents first ignored and then allowed to expire.
This might be worth remembering when it is suggested that cuts to essential programs are necessary to bring the budget into balance. They're not. There may be good reasons to cut dividend and capital gains taxes from an economic efficiency standpoint, so I am not suggesting that those particular taxes be reversed. But that does not exhaust the possibilities for increasing revenue and less distortive taxes are available to make up the revenue loss without sacrificing progressivity. What I am suggesting is that we think hard about who pays for the tax cuts - should it be a tax shift to reduce distortions or should it be cuts to programs - because it's very clear tax cuts won't pay for themselves.