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US FY07 budget deficit to drop to $158 bln

WASHINGTON - The US budget deficit will shrink to $158 billion in fiscal 2007, according to the nonpartisan Congressional Budget Office on Thursday in a forecast down from its March estimate of $177 billion, a congressional source said.

CBO’s latest deficit projection for this fiscal year, which ends Sept. 30, was significantly lower than a $205 billion estimate issued by the Bush administration on July 11.

The US budget deficit in fiscal 2006 was $248 billion, down from a record high $413 billion in fiscal 2004.

Big corporate bonuses and a bullish stock market for most of the present fiscal year generated strong income tax revenues.

Recent capital losses will cut into tax collections from the financial sector in the next fiscal year, which begins Oct. 1. CBO’s deficit forecast for fiscal 2008, which will be officially released on Thursday, may not be a realistic view of next year’s budget outlook, the congressional source said.

Analysts have said much depends on whether the latest turmoil in financial markets translates to a general economic slowdown.

Contributions to recent tax revenue, such as strong corporate profits and capital gains, will not be sustained and outlays for war costs and entitlements will grow, analysts warned.

The effect of a crisis in debt markets is still unfolding and increases the possibility of a slowdown, although the economy overall does not look weak, according to analysts.