The federal government will run a deficit of $172 billion in fiscal 2007, the Congressional Budget Office said yesterday.The projected deficit will drop to $98 billion in 2008 and flatten out by 2012/ The deficit for the 2006 fiscal year, which ended Sept. 30, was $248 billion.

The budget has already shown signs of improving for the current fiscal year. For the first quarter, receipts outpaced those from the same period in 2006 by $43 billion – although spending for the period has risen $8 billion, year over year. As a result, in contrast to the $119 billion deficit recorded for the first quarter of 2006, the government ran an $85 billion deficit for the first quarter of 2007.

By congressional accounting conventions, CBO's midterm projection estimates won’t include the cost of extending the tax cuts enacted in President Bush's first term, or the cost of extending a now-almost annual fix to the alternative minimum tax.

In his State of the Union address on Tuesday, President Bush said that he plans to propose a balanced budget plan next month that eliminates the federal deficit within the next five years. The president has said the balancing act can come without raising taxes and that the elimination of earmarking bills with costly political pork should be stopped.

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