US Slashes Deficit Estimate By $127bn As Tax Revenues Rise

The US government yesterday slashed its estimate of its 2006 budget deficit by $127bn (£69bn) due to much stronger than expected tax receipts from both businesses and individuals.

The Bush White House had originally forecast in February a budget shortfall of $423bn for the 2006 fiscal year but now sees it shrinking to $296bn. The deficit came in at $318bn in 2005 after hitting a record $413 bn in 2004.

The windfall of tax receipts, due largely to robust economic growth in the first half of the year, easily outweighed extra spending on the Iraq war and reconstruction after Hurricane Katrina.

President Bush said the figures were "good news for the American taxpayer", adding: "The economy is growing, federal taxes are rising and we're cutting the federal deficit faster than we expected."

President Bush has been widely criticized for turning a budget surplus inherited from Bill Clinton into a big deficit, by raising spending sharply and cutting taxes in 2001 and again in 2003.

"We brought down the national debt by about a half a trillion dollars. So please let's not boast about a $300bn deficit," said Senate Democratic leader Harry Reid.

But the White House repeated yesterday that its tax cuts had spurred economic activity sufficiently to push up tax revenues, although many economists dispute this as the tax cuts mainly benefited the rich, who traditionally save rather than spend any tax cut.