Senior fellow Rudolph Penner analyses the Bush administration's 2007 Budget, and reviews the long-term outlook for fiscal policy and the budget balance. The good news is that the budget deficit is likely to decline as a percent of GDP for the next few years, even if the President's tax cuts are made permanent. The bad news is that little progress will be made on reforming entitlements, which are set to explode in the next decade as the population ages. Congress is unlikely to tamper with Social Security and Medicare until it is forced to do so by voters or financial markets.