A new budget report released Tuesday predicts the government will run a $1.1 trillion deficit in the fiscal year that ends in September, a slight dip from last year but still very high by any measure.
The Congressional Budget Office report also says that 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.
The report is yet another reminder of the perilous fiscal situation the government is in, but it’s commonly assumed that President Barack Obama and lawmakers in Congress that little will be accomplished on the deficit issue during an election year.
The first wave of statements from lawmakers had a familiar ring as each party cast blame on the other.
“Four straight years of trillion-dollar deficits, no credible plan to lift the crushing burden of debt,” said House Budget Committee Chairman Paul Ryan, R-Wis., “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, D-N.D. “Republicans must be willing to put revenue on the table.”
The CBO study also predicts modest economic growth of 2 percent this year and forecasts that the unemployment rate will be 8.9 percent 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 by the end of next month.
That jobless rate is higher than the rates that contributed to losses by Presidents Jimmy Carter (7.5 percent) and George H.W. Bush (7.4 percent). The study predicts unemployment to remain above roughly 5 percent — until 2016. The agency also predicts that unemployment will remain at 7 percent or above through 2015
The new figures also show that last summer’s budget and debt pact has barely made a dent in the government’s fiscal woes.
The pact imposed $2.1 trillion in spending cuts over 10 years, but lawmakers are already talking about easing across-the-board spending cuts required under the agreement. The latest estimates predict $11 trillion in accumulated deficits over the 2013-2022 time frame if the Bush-era cuts in taxes on income, investments, large estates and on families with children are renewed. Obama has proposed largely extending them, but allowing them to expire for upper-income taxpayers.
Last year, Obama and House Speaker John Boehner, R-Ohio, tried but failed to reach a “grand bargain” on the deficit, an effort that got hung up over taxes and cuts to major benefit programs like Medicare. A subsequent attempt by a congressional “supercommittee” to find smaller saving sputtered over the same issues.
What’s left is a heap of unfinished business that comes to a head at the end of the year: expiring tax cuts and painful across-the-board cuts to the Pentagon and many domestic programs. To top it off, another politically toxic increase in the debt limit will be needed at some point shortly after the November elections.
The deficit would require the government to borrow 30 cents of every dollar it spends. Put another way, the deficit will reach 7 percent of the size of the economy, a slight dip from last year’s 8.7 percent of gross domestic product.
The CBO report shows that the deficit dilemma would largely be solved if the tax cuts enacted in 2001 and 2003 — and renewed in 2010 through the end of this year — were allowed to lapse. Under that scenario, the deficit would drop to $585 billion in 2013 and to $220 billion in 2017.
But expiration of those tax cuts would slam the economy, CBO said, bringing growth down to a paltry 1.1 percent next year.