A new estimate from congressional economists says the government will run a $1.2 trillion deficit for the budget year ending just a few weeks before Election Day. It would be the fourth straight year of trillion dollar-plus deficits.
The almost $100 billion spike from earlier projections for the fiscal 2012 deficit comes almost exclusively because Congress passed legislation recommended by President Barack Obama to renew a 2 percentage point cut in payroll taxes and jobless benefits for people languishing on unemployment rolls for more than six months.
The Congressional Budget Office report is just the latest confirmation of the government's severe fiscal problems. While the official CBO forecast predicts the deficit sliding to just 1 percent of the size of the economy within a few years, that estimate relies on revenues averaging about $500 billion a year over the coming decade — mostly from expiration of Bush-era tax cuts on income, investments, large estates and for families with children.
But Obama and Republicans alike agree on extending the bulk of the Bush-era tax cuts when they expire at the end of the year. A battle is set, however, on whether to extending income tax rate cuts on income in excess of $200,000 a year for individuals or $250,000 a year for couples.Earlier in the week, CBO reported:
Over the longer term, budgetary challenges will remain even if the fiscal policies specified by current law come to pass—and the challenges will be much more acute if those policies do not remain in place. Under both CBO’s baseline and its alternative fiscal scenario, the aging of the population and rising costs for health care will push spending for Social Security, Medicare, Medicaid, and other federal health care programs considerably higher as a percentage of GDP. If that rising level of spending is coupled with revenues that are held close to their average percentage of GDP for the past 40 years (rather than being allowed to increase, as under current law), the resulting deficits will push federal debt to unsupportable levels.