The non-partisan Congressional Budget Office, in a report released today said thatUnited Statesis set to record its fourth straight year of $1 trillion-plus budget deficit. The current year fiscal deficit, set back by weaker than expected corporate tax revenues, will stay above $1 trillion. The past two years saw the country post $1.3 trillion deficits, which was marginally lower than the $1.4 trillion deficit, recorded in Obama’s first year in office in fiscal 2009. Based on the assumption that Bush-era tax cuts expire at the end of 2012, the CBO forecasts show the deficit falling to about $585 billion for fiscal 2013.
Compared to its previous estimate of $973 billion made last August, the Congressional Budget Office said the fiscal 2012 deficit would rise to $1.079 trillion. This figure is likely to rise by another $100 billion if Congress, as expected, extends payroll tax cuts through year-end.
The CBO report is expected to stir up the already hot national debate of whether the rich should shoulder more of the burden in fixing the fiscal mess. Renewed attention will also be drawn to the appropriate size of the federal government in coming years.
Credit rating agencies are yet to react to the forecast, but another year of $1 trillion deficit should do little good to theU.S.case for reclaiming its top-tier rating, cut by Standard & Poor’s last year. Credit rating agencies have voiced their concern over the alleged lack of political willingness to cut back on the budget deficit and have called for at least $4 trillion inU.S.deficit reduction over the next decade. Last September, Obama proposed a $4 trillion deficit-reduction plan but it got stalled amid partisan bickering on Capitol Hill. White House officials have revealed that he plans to revive it, on February 6, when he proposes his 2013 budget.
Experts said the CBO figures are an ample evidence of the seriousness of theU.S.debt problem. Republicans were severely critical of the CBO figures and called it a “harsh indictment” of Obama’s economic policy. Polls have shown that the president is most vulnerable on the economy, and Americans have consistently been unhappy with his economic policies since he took office in 2009.
The new CBO forecast, besides providing estimates on the country’s budget and economic profile, is also a handy tool for lawmakers, who take cue from the official numbers to write next year’s budget. The CBO expects the economy to expand by 2 percent this year while the unemployment rate should climb from the current 8.5 percent to 8.9 percent.