Bernanke: budget deficit improving
White House aide says budget could be tamed in 2005 with significant tax revenue growth.
July 13, 2005: 6:39 AM EDT
WASHINGTON (Reuters) - In his first major speech as White House economic adviser, Ben Bernanke predicted Tuesday that the 2005 U.S. budget deficit could come in "well below" previous estimates because of robust tax revenue.
Estimates of wage and salary income have been lifted "substantially" and it is possible the labor market is stronger than previously thought, said Bernanke, a former Federal Reserve governor who last month became chairman of the White House Council of Economic Advisers.
"One consequence of the strong income growth we are enjoying is higher-than-expected levels of tax collections so far this year which, if maintained with spending controls, will reduce the government's budget deficit for this year well below its projected level," he told the American Enterprise Institute, a conservative think tank.
Bernanke did not offer specifics ahead of the government's "mid session" update, which is scheduled to be released at 11:30 a.m. EDT Wednesday.
The White House earlier this year projected a $427 billion shortfall for the fiscal year that ends Sept. 30, up from 2004's record deficit of $412 billion. Some private analysts have projected a 2005 gap in the area of $350 billion.
Bernanke and other White House officials have touted progress in the budget situation as a sign President Bush's tax-cutting policies are working.
But some private economists have argued that at least part of the improvement is a temporary windfall from factors such as last year's buoyant stock market.
Bernanke said that "despite the challenges created by high oil prices," the U.S. economy appeared "on track" to meet previous White House forecasts of 3.4 percent growth in 2005.
Benanke on Social Security, taxes and housing
Bernanke pitched Bush's domestic economic agenda, including overhauling Social Security and expanding the use of tax-free savings accounts for health-care, as proposals that would help workers adapt to a fast-changing economy.
Bush's proposal to create private investment accounts for the government-run retirement plan, his top agenda item in his second term, has been unpopular with the public as well as with a number of his Republican allies in Congress.
Turning to another central agenda item, Bush's proposed overhaul of the tax code, Bernanke said he thought fixing the alternative minimum tax would be a "high priority" in the deliberations of a panel now studying tax changes.
The Bush-appointed panel is due to report on Sept. 30 after its deadline was pushed back by a White House grappling with a crammed domestic agenda.
The alternative minimum tax, a parallel tax intended to ensure the wealthy pay enough tax but is increasingly imposed on the middle class, is one of the tougher issues on the panel's plate.
Bernanke said the administration would be monitoring the booming U.S. housing market, which Federal Reserve Chairman Alan Greenspan has said shows signs of "froth."
Bernanke said "speculative behavior" appears to be surfacing in some local housing markets, but a good deal of its strength is tied to economic fundamentals such as low interest rates and rising incomes.
"The administration will continue to monitor these developments," Bernanke said. But he added the best defenses were vigilant lenders and bank regulators and "good sense on the part of borrowers."
Bernanke believes quick reform on the alternative minimum tax is absolutely essential