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.
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Last year's deficit registered $1.3 trillion.
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.
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If the Bush tax cuts are renewed, CBO says, and if automatic spending cuts mandated by last year's budget and debt pact are waived as seems possible, annual deficits would average more than $1 trillion a year over the coming decade and would, economists says, eventually spark an economic crisis.
While the short-term deficit mess is largely a product of the recent recession and slow recovery, the long-term crisis is a result of the impact baby boomers will have on federal retirement programs and the large projected increases in health care inflation.
"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," the report said. "If that rising level of spending is coupled with revenues that are held close to their average ... the resulting deficits will push federal debt to unsupportable levels."
The budget office estimated somewhat lower costs for covering the uninsured under President Barack Obama's health care overhaul law, as well as slightly fewer people gaining coverage.
Assuming the Supreme Court does not overturn the law, it would reduce the number of uninsured by 30 million in 2016, or 2 million fewer people than estimated last year. Total costs from 2012-2021 are about $50 billion lower than estimated last year. That's due to a combination of factors, including overall health care costs rising more slowly than in the recent past.
The CBO report comes as Republicans controlling the House are preparing for this year's budget debate, which is sure to spill over into the presidential campaign as the two sides quarrel over Medicare, taxes and cuts to the Pentagon budget.
The budget plans of the leading GOP presidential candidates each call for new, significantly larger tax cuts that would add even more to projected deficits, according to independent analysts.