In March, the Congressional Budget Office (CBO) projected that the federal budget deficit would reach $477 billion this fiscal year. This week, CBO released an update of its budget outlook and is now projecting the fiscal year 2004 budget deficit to be $422 billion, or roughly $56 billion less than previously estimated. This downward revision, which is largely the product of a higher-than-anticipated inflow of revenues into federal coffers, is consistent with the Office of Management and Budget’s (OMB) Mid-Session Review released in July. Even though this year’s federal budget deficit is the highest in dollar terms, when compared to the size of the economy it remains below the peak levels reached in the 1980s and 1990s.