Good News about the Federal Budget

Today's Wall Street Journal reports modestly good news about the U.S. federal budget:

Surge in Tax Revenue Cuts Federal-Deficit Projections

A surge in federal tax revenue, mainly in payments from rich Americans, is driving down government and private-sector projections of this year's federal deficit to as low as $300 billion, well below current forecasts that are near or over $400 billion....That would be good news for President Bush and the Republican-led Congress....

But the brighter short-term outlook doesn't change long-run forecasts of unsustainable deficits as more Americans age and draw Medicare, Medicaid and Social Security benefits.In its annual long-term outlook in January, the CBO wrote that spending for those programs "will exert pressures on the budget that economic growth alone is unlikely to alleviate. A substantial reduction in the growth of spending and perhaps a sizable increase in taxes as a share of the economy will be necessary for fiscal stability to be at all likely in the coming decades."

The article strikes the right balance. One fear is that the good news about the short-run fiscal outlook will induce policymakers to ignore the longer-term fiscal outlook, which remains grim.

Related link: Economist David Henderson has an excellent new article (alternate link) on the long-term challenges facing fiscal policy.