No stemming red ink: Federal deficit to hit $1.5T

Park Sae-jin Reporter() | Posted : January 28, 2011, 13:44 | Updated : January 28, 2011, 13:44
The U.S. government's federal deficit spending is expected to grow to a record $1.5 trillion flood of red ink this year, congressional budget experts estimated Wednesday. They are blaming the slow economic recovery and last month’s tax-cut law.

Wednesday‘s Congressional Budget Office estimates indicate the government will have to borrow 40 cents for every dollar it spends this fiscal year, which ends Sep. 30. Instead, tax revenues are projected to drop to their lowest levels since 1950.

The report, full of nasty news, also has a strking prospcts on Social Securiy. It says that after decades of Social Security surpluses, the vast program’s costs are no longer covered by payroll taxes.

According to AP report, the budget estimates will add fuel to the already-raging debate over spending and looming legislation that would allow the government to borrow more money as the national debt nears the $14.3 trillion cap set by law. Republicans controlling the House say there‘s no way they’ll raise the limit without significant budget cuts, starting with a government funding bill that will advance next month.

Democrats and Republicans agree that stern anti-deficit steps are needed, but neither Obama nor his resurgent GOP rivals on Capitol Hill are - so far - willing to put on the table cuts to popular benefit programs such as Medicare, farm subsidies and Social Security. The need to pass legislation to fund the government and prevent a first-ever default on U.S. debt obligations seems sure to drive the two sides into negotiations.

The latest deficit figures are up from previous estimates because of bipartisan legislation passed in December that extended George W. Bush-era tax cuts and unemployment benefits for the long-term jobless and provided a 2 percentage point Social Security payroll tax cut this year. That measure added almost $400 billion to this year‘s deficit according to CBO.

The deficit is on track to beat the record of $1.4 trillion set in 2009. The budget experts predict the deficit will drop to $1.1 trillion next year, still very high by historical standards.

Republicans focus on Obama’s contributions to the deficit: his $821 billion economic stimulus plan, boosts for domestic programs and his signature health care overhaul. Obama points out that he inherited deficits that would have exceeded $1 trillion a year anyway.

CBO predicts that the deficit will fall to $551 billion by 2015 - a sustainable 3 percent of the economy - but only if the Bush tax cuts are wiped off the books. Under its rules, CBO assumes the recently extended cuts in taxes on income, investment and people inheriting large estates will expire in two years. If those tax cuts, and numerous others, are extended, the deficit for that year would be almost three times as large, AP reported.

Tax revenues, which dropped significantly in 2009 because of the recession, have stabilized. But revenue growth will continue to be constrained. CBO projects revenues to be 6 percent higher in 2011 than they were two years ago, which will not keep pace with the growth in spending.

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