WASHINGTON – The government will run a $1.1 trillion deficit in the budget year that ends in September, according to a budget report released Tuesday. It is a slight dip from last year but still very high by any measure.
The Congressional Budget Office report also says annual deficits will remain in the $1 trillion range for the next several years if Bush-era tax cuts slated to expire in December are extended, as commonly assumed, and if Congress is unable to live within the tight “caps” the lawmakers themselves placed on agency budgets last year.
The report is yet another reminder of the perilous fiscal situation the government is in, but it is commonly assumed that President Barack Obama and lawmakers in Congress will be able to accomplish little on the deficit issue during an election year. The report was slightly more pessimistic than CBO’s most recent projections half a year ago and would mean the fourth consecutive year of trillion-dollar-plus deficits.
The recent wave of shocking, trillion-dollar-plus deficits has been largely a product of the recent deep recession and the slower-than-hoped recovery. The jolt to the economy has made a permanent dent in revenue estimates but the budget crunch will get even worse with the retirement of the baby boom generation and the resulting strain of Social Security and Medicare, the government’s main health care and pension systems mainly for retired Americans.
The report prompted a familiar wave of statements from lawmakers casting blame on the other party for the fiscal mess.
“Four straight years of trillion-dollar deficits, no credible plan to lift the crushing burden of debt,” said House Budget Committee Chairman Paul Ryan, a Republican. “The president and his party’s leaders have fallen short in their duty to tackle our generation’s most pressing fiscal and economic challenges.”
“We will not solve this problem unless both sides, Democrats and Republicans, are willing to move off their fixed positions and find common ground,” said Senate Budget Committee Chairman Kent Conrad, a Democrat. “Republicans must be willing to put revenue on the table.”
Republicans acknowledge that Obama inherited a budget mess and an economy in recession, but they say he has done little to try to keep his 2009 promise to cut the deficit in half by the end of his first term.
“We know that President Obama’s policies have failed to produce the economic growth needed to pay down these massive deficits that are creating uncertainty, preventing economic recovery, and harming job creation,” said House Majority Leader Eric Cantor. “When something doesn’t work, you change it. Let’s try something new.”
The CBO study also predicts modest economic growth of 2 per cent this year and forecasts that the unemployment rate will be 8.9 per cent on Election Day. That is based on an assumption that President Barack Obama will fail to win renewal of payroll tax cuts and jobless benefits through the end of the year.
That jobless rate is higher than the rates that contributed to losses by Presidents Jimmy Carter (7.5 per cent) and George H.W. Bush (7.4 per cent). The agency also predicts that unemployment will average 9.1 per cent in 2013 and remain at 7 per cent or above through 2015.
CBO Director Douglas Elmendorf, however, told reporters that extending the two percentage-point cut in Social Security payroll taxes would only lift the economy by perhaps one-fourth of a percentage point this year and probably would yield only a 0.1 to 0.2 percentage point drop in the jobless rate.
The agency’s budget projections are worse than those issued last year, largely because its views on the economy are more pessimistic now. Last August, CBO predicted a $953 billion deficit for 2012 fiscal year, which ends Sept. 30. Corporate tax receipts are sharply lower than anticipated last year.
On the economy as a whole, CBO now predicts 2 per cent growth from the fourth quarter of 2011 to the fourth quarter of this year, a 0.7 percentage point drop from its August numbers. Its predictions of the jobless rate are 0.4 per cent higher.