Zagby

Deborah Solomon reports on today’s Congressional Budget Office deficit estimate.

Rich Americans are continuing to fill Treasury’s coffers as an “increased concentration of income” among the wealthiest helps to bring down the federal deficit.

In its annual summer budget and economic update, the nonpartisan Congressional Budget Office now projects a $158 billion deficit in 2007, about $19 billion less than it projected in March and significantly lower than the actual 2006 deficit of $248 billion. Earlier this year the White House projected a 2007 deficit of about $205 billion, but called that estimated conservative.

The narrowing stems from several factors, including lower spending and a surge in tax receipts, particularly from wealthy individuals. Individual income taxes and payroll taxes are expected to climb about 8% in 2007, fueled by bonuses, capital gains and higher earnings among the highly compensated.

CBO Director Peter Orszag says an “increased concentration of income” among the top wage earners is boosting tax receipts as those higher earnings are taxed at a higher rate, bringing more money into the U.S. Treasury. At the same time, corporate taxes, which had been fueling the rise in revenue, have “slowed markedly and stopped growing as a percent of GDP,” Orszag says. While corporate tax receipts are still rising, they are expected to grow just 6.2% this year compared with a 27.2% jump between 2005 and 2006.

More broadly, while the economic outlook remains somewhat “clouded” by recent market turmoil, CBO remains upbeat about the economy.

Orszag expressed greater concern about the economic impact posed by long-term fiscal challenges, such as rising costs for entitlement programs like Medicare and Social Security. In what’s becoming a common refrain in Washington, Orszag warned that unless the rate of spending for these programs is cut, the government will find itself in a severe financial situation as health care and other benefit payments begin to outpace revenue.

“We are on an unsustainable fiscal path,” Orszag said.

Popularity: 40% [?]

John Godfrey reports on the federal budget.

The U.S. federal budget deficit will fall for the third year running, totaling $158 billion in fiscal-year 2007, the Congressional Budget Office estimated. The budget deficit for fiscal year 2006 was $248 billion.

The White House and congressional Republicans are likely to point to the latest estimates as proof that President Bush’s fiscal policies are working and that, on the whole, the nation’s economy remains strong.

The new estimate is a $19 billion improvement in the outlook since March, when CBO predicted an annual budget deficit for 2007 of $177 billion. CBO also predicted that despite recent market disruptions, the nation’s economic outlook remains “sound.” It predicts real GDP will grow by 2.1% in 2007 and by 2.9% in 2008.

Federal Budget Deficit

CBO

CBO expects the 2007 deficit to total $158 billion, $90 billion decline from the deficit recorded for 2006.

“The policies of low taxes and spending restraint have produced a clear and measurable record of success,” Bush told reporters last month when the White House unveiled it’s mid-session budget review. “You can’t argue with what I’m telling you. These are the facts.”

But congressional Democrats and budget hawks say there’s really little to cheer about, noting that Congress will have to vote again this fall to raise the federal debt limit because of on-going annual budget deficits. “In total, the nation’s debt has already climbed by more than $3 trillion under President Bush — much of it borrowed from foreign nations like China and Japan,” said Senate Budget Committee Chairman Kent Conrad (D., N.D.). “I don’t hear anyone in the administration crowing about that statistic.”

In any case, Bush, Conrad, and most others involved in the budget debate in Washington agree that whatever the short-term budget picture, the nation’s long-term fiscal policies remain dangerously unbalanced. “Over the long-term, the budget remains on an unsustainable path,” CBO wrote in its report Thursday. The estimate is based upon actual data on receipts and expenditures through the first three quarters of the fiscal year and estimates of such data for the last quarter.

Popularity: 78% [?]

Kevin Kingsbury reports on changes at the SEC.

Outgoing Securities and Exchange Commission member Roel Campos will join law firm Cooley Godward Kronish LLP and become partner-in-charge of its Washington office. He announced two week ago that he would step down in September midway through is second term as commissioner.

Campos will “focus on representing companies in SEC enforcement matters and internal investigations, advising board and committees involving governance matters and compliance issues, and advising private equity, hedge and mutual funds regarding regulatory matters.” The firm has 600 attorneys.

Campos was confirmed by the U.S. Senate in August 2002, the same time Sarbanes-Oxley was approved. He was a private attorney before serving in the U.S. prosecutor’s office in Los Angeles from 1985 to 1989. At the SEC, Campos has been seen as a vigorous supporter of the agency’s enforcement staff, and questioned efforts to rein it in, including an initiative begun this year under Chairman Christopher Cox which requires SEC lawyers to obtain approval from the commission before negotiating fines with corporations seeking to settle with the agency.

Popularity: 60% [?]

Winston Wood reports on the 2008 presidential campaign.

Edwards

John Edwards’s campaign continues trying to make political lemonade from lemons when he or other Democrats come under attack.

In a “strategy memo” to supporters, Edwards adviser Joe Trippi called recent remarks by Karl Rove slamming Hillary Clinton as divisive a “page straight out of his tired old playbook.” Rove is attacking HRC “because he doesn’t want” Edwards to win the nomination and he knows Dems “will rally around whomever he attacks.”

Rove and the GOPers “want our [Democratic] opponents to win — because they know John will be the strongest candidate in the general election,” Trippi wrote. He then asks for a campaign contribution. “All we need is your support to drive right past Karl Rove’s see-through tactics — and keep our campaign on the road to victory.”

The Edwards’s camp used a similar appeal when conservative commentator Ann Coulter referred to the former North Carolina senator as a “faggot” at a political conference earlier this year. It asked supporters to help “raise $100,000 in ‘Coulter Cash’ to keep the campaign charging ahead and fight back against the politics of bigotry.”

The money would come in handy. Edwards, with $23 million in total contributions, trails both Clinton ($63 million) and Sen. Barack Obama ($58.9 million) in both fundraising and presidential preference polls.

Popularity: 100% [?]

John Godfrey reports on the subprime-mortgage fallout.

Schumer

Sen. Charles Schumer (D., N.Y.) is pushing federal regulators to raise portfolio caps at Fannie Mae and Freddie Mac and ask banks to help with workouts for borrowers hit by the mortgage lending meltdown.

“The Federal Reserve Bank has taken good steps to restore liquidity to the financial system, but there is still much more that needs to be done to address the risks that we face to our broader economy caused by the ongoing turmoil in the mortgage market,” Schumer wrote in a letter to federal regulators.

Schumer, a member of the Senate Banking, Housing and Urban Affairs committee, asked Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and other federal regulators to get behind a plan to provide $100 million to not-for-profit housing groups to help borrowers refinance their subprime loans, spokesman Brian Fallon said. Fallon said that 20% to 40% of borrowers hit in the subprime lending crisis should have qualified for prime-rate loans.

Schumer noted that the prevalence of securitization in the mortgage industry has slice-and-diced individual home loans. With few of today’s lenders holding on to the mortgages they underwrite, borrowers facing resets on their adjustable-rate loans frequently have no intermediary to negotiate with on the terms of a potential workout. Schumer wrote in his letter that $100 million would not be enough to help all the borrowers needing to rework their loans. “I urge you to ask the administration to come up with quick additional financing,” Schumer wrote.

Popularity: 43% [?]

John D. McKinnon reports on the Bush, Maliki relationship.

The White House underscored its support for Iraqi Prime Minister Nouri al-Maliki on Wednesday morning, seeking to counter stories in some morning newspapers suggesting that President Bush was further distancing himself.

Asked what had been misreported, a White House aide paraphrased headlines in major papers: “Bush backs away from Maliki; Bush is cool toward Maliki,” said spokesman Gordon Johndroe. The New York Times headline read, “A Step Away From Maliki,” while the Washington Post said, “Bush Turns Up Heat on Maliki.”

In a press conference in Canada on Tuesday, Bush said it was up to the Iraqi people to decide whether to replace Maliki. On Wednesday, Johndroe said Bush was simply stating the obvious about how democracy works, not suggesting that Maliki ought to go. “We tried to make it clear,” Johndroe said. “In spite of that, reporting today said the president is backing away from Prime Minister Maliki.”

Bush himself left no doubt in his remarks on Wednesday. “Prime Minister Maliki’s a good guy, a good man with a difficult job and I support him,” Bush said to a veterans group meeting in Kansas City. “And it’s not up to the politicians in Washington D.C. to say whether he will remain in his position. It is up to the Iraqi people who now live in a democracy and not a dictatorship.”

Criticism of Maliki has been building in the U.S. in recent days, particularly as the security situation in Iraq has appeared to improve somewhat. That’s increasing the focus of war critics on the relative lack of progress on the political front, as the Iraqi government stalls over major reconciliation issues, such as an oil revenue sharing law.

Popularity: 42% [?]

Neil King Jr. on the Teamsters’ pension fund pullout.

Hoffa

Teamster boss James Hoffa is jumping into the Iran-divestment movement, urging the union’s pensions funds to shed all shares they own in companies doing business in Iran.

In a letter set to go out on Thursday to more than 170 fund managers, Hoffa cites the recent crackdown in Iran on top labor leaders and widespread allegations that Iran is arming and training insurgents in Iraq as reasons why fund managers should “give consideration to divesting” in Iran-related shares. The Teamsters’ pension funds amount to about $110 billion.

A number of states, including Florida, Missouri and California, have passed legislation to rid their public pension funds of shares in companies active in Iran. The Senate next month is expected to take up a bill, already passed by the House, to protect fund managers from shareholder lawsuits after they divest, and to force the government to provide a list of companies with investments over $20 million in Iran’s energy sector.

Some local unions, such as the AFL-CIO in Florida, have backed state divestment movements recently, but the Teamsters — with about 1.4 million members and 400,000 pensioners — are the first to take a stance at the national level. “I believe divesting investments in companies linked to Iran is not only the patriotic thing to do, but a wise investment strategy,” Hoffa writes.

Popularity: 41% [?]

John D. McKinnon reports on the White House.

In a speech to veterans today, President Bush will seek to use America’s Vietnam war experience as a justification for maintaining the current U.S. military effort, rather than withdrawing.

See continuing coverage of developments in Iraq, including an interactive map of day-to-day events in Iraq and a tally of military deaths.

• Bush speech excerpts: “This enemy will be defeated”

The president’s unusual attempt to directly address the parallels that critics see between Iraq and Vietnam marks a significant ramping up of the administration’s rhetoric on the war, in advance of an upcoming report to Congress in September by Gen. David Petraeus and Ambassador Ryan Crocker. It also appears to foreshadow a mixed picture of successes and failures in the report.

While administration officials say the current military surge has generally led to improved security conditions, they acknowledge that the political progress of the Iraqi government has not been as good. In response to a reporter’s question Tuesday, Bush said that “there’s a certain level of frustration with the leadership in general.” He cited the government’s failure to adopt an oil revenue-sharing arrangement for Shiite, Sunni and Kurdish regions, among other failures.

The White House released excerpts of his planned remarks, apparently in an effort to generate public interest. Bush will directly compare the Iraq conflict to Vietnam — another long-running conflict where U.S. involvement became controversial and calls for withdrawal ultimately became politically irresistible. But he will make the case that the Vietnam conflict was part of a long and ultimately successful battle in Asia against militarism and communism.

“In Asia, we saw freedom triumph over violent ideologies after the sacrifice of tens of thousands of American lives — and that freedom has yielded peace for generations,” he is expected to say. “The advance of freedom in these lands should give us confidence that the hard work we are doing in the Middle East can have the same results we have seen in Asia — if we show the same perseverance and sense of purpose.”

Popularity: 41% [?]

Christopher Conkey reports on the outgoing FAA administrator.

Outgoing Federal Aviation Administrator Marion Blakey will be the next president and chief executive of the Aerospace Industries Association, the Washington-based trade group said today. Founded in 1919, the AIA represents a wide range of defense contractors, aerospace firms and suppliers.

Blakey’s five-year stint atop the FAA is due to expire next month, and she had previously indicated a desire to reenter the private sector. Prior to her FAA post, Blakey ran a consulting firm focused on transportation and traffic safety after serving as chairman of the National Transportation Safety Board and administrator of the National Highway Traffic Safety Administration.

An Alabama native, Blakey has been well regarded by many in Congress and in the aviation world. At a House hearing on air-traffic control funding last month, Republican Rep. John Mica of Florida, the ranking member of the House Transportation and Infrastructure Committee, stopped the hearing and led an ovation in tribute to her public service.

But Blakey will step down with some of the FAA’s biggest goals unmet, most notably an overhaul of the nation’s air-traffic control system, currently straining under outdated technology and increasing demand. Congress has virtually ignored the FAA’s proposal to realign how the system is funded, matching usage closer to costs, and will take up competing proposals when it reconvenes next month. She also exits as tensions between the air-traffic controllers’ union and the FAA are boiling over, and Congress this autumn may force the parties back into negotiations or arbitration.

The White House had no immediate comment about Blakey or who might replace her.

Popularity: 42% [?]

Jay Solomon reports on a new 9/11 report from the CIA inspector general.

Tensions between former Central Intelligence Agency head George Tenet and current chief Gen. Michael Hayden may have played a role in Washington’s failures to combat al Qaeda before 9/11, the CIA’s Inspector General concludes in a recently declassified report.

Hayden

Hayden headed Washington’s principal electronic surveillance unit, the National Security Agency, from March 1999 through May 2005, and during that time there was a “persistent strain” in relations between the CIA and NSA in the months leading up to the Sept. 11, 2001, attacks, the IG found. “Significant differences existed between the CIA and NSA over their respective authorities” and that they remained unresolved well into 2001 “in spite of the fact that considerable management attention was devoted to the issue.”

The report also notes that NSA displayed an “unwillingness to share” raw signals intelligence with the Agency in the months leading up to 9/11. This, the report concluded, made it more difficult for the CIA’s Counterterrorism Center “to perform its mission against al Qaeda.”

Tenet

The Inspector General’s report recommends that an Accountability Board review the performance of Tenet “for failing to act personally to resolve the differences between the CIA and NSA.” Tenet would face no official punishment if the panel comes back with a critical finding, but it would likely add further controversy to his tenure at the spy agency.

Through a spokesman, he called much of the report “flat wrong” and criticized the Inspector General for failing “to interview either me or policymakers from either the Clinton or Bush Administrations” on key issues related to counter-terrorism efforts. Hayden, meanwhile, said in a statement that he is concerned the report “would distract officers serving their country on the frontlines of a global conflict.”

Popularity: 47% [?]