US deficit could hit $1.5 trillion
The US government’s deficit spending will surge to a record $1.5 trillion (€1.09 trillion) this year, congressional budget experts estimated, blaming the slow economic recovery and last month’s extension of Bush-era tax cuts.
Equally daunting for President Barack Obama, the non-partisan agency also estimates a nationwide unemployment rate of 8.2% on election day in 2012.
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 (€10.44 trillion) cap set by law.
Republicans controlling the House of Representatives say there is no way they will raise the limit without significant budget cuts, starting with a government funding bill that will advance next month.
The figures came the day after Mr Obama called in his State of the Union address for a five-year freeze on optional spending in domestic agency budgets passed by Congress each year.
The Congressional Budget Office estimates indicate the government will have to borrow 40 cents for every dollar it spends this fiscal year, which ends on September 30. Tax revenues are projected to drop to their lowest levels since 1950 when measured against the size of the economy.
The report, full of bad news, also says that after decades of surpluses for the federal social security pension programme, its vast costs are no longer covered by payroll taxes.
Democrats and Republicans agree that stern anti-deficit steps are needed, but neither Mr Obama nor his resurgent rivals in Congress are – so far – willing to put on the table cuts to popular benefit programmes such as farm subsidies and entitlement programmes for the elderly like social security and Medicare.
The need to pass legislation to fund the government and prevent a first ever default on US debt obligations seems sure to drive the two sides into negotiations.
Though the analysis predicts the economy will grow by 3.1% this year, it foresees unemployment remaining above 9%.
As Mr Obama looks ahead to next year’s White House race, a predicted jobless rate of 8.2% does not bode well: it would be higher than the rates that contributed to losses by presidents Jimmy Carter (7.5%) and George Bush Snr (7.4%).
The US is not projected to be at full employment – considered to be a jobless rate of about 5% – until 2016.
The latest deficit figures are up from previous estimates because of bipartisan legislation passed in December that extended George Bush Jnr-era tax cuts and unemployment benefits for the long-term jobless and provided a 2% social security payroll tax cut this year.
That measure added almost $400bn (€292bn) to this year’s deficit, CBO says.
The deficit is on track to beat the record of $1.4 trillion (€1.02 trillion) set in 2009. The budget experts predict the deficit will drop to $1.1 trillion (€803m) next year, still very high by historical standards.
