Tax Cuts Don't Improve Deficits BUT..."If Bush-Obama Tax Cuts Expire the Deficit WILL DECLINE TO $345 Billion in 2014"

[웃 910]

Budget Deficit Tops $1 Trillion, but Is Falling, Report Says

WASHINGTON — The United States economy will remain sluggish for the next few years, with unemployment high, but budget deficits are starting to come down, the Congressional Budget Office said on Tuesday in its latest formal outlook.

The deficit in the current fiscal year is expected to be $1.1 trillion, the budget office said, the fourth year in which it would exceed $1 trillion.

But it just might be the last such year, at least for a while. Unless Congress passes new legislation changing the course on spending or taxation — changes that are a distinct possibility, but no basis for a forecast — projected deficits would “drop markedly” starting next year and for a decade to come.

That is because current laws would allow the Bush-era tax cutsto expire, the alternative minimum tax to reach ever more taxpayers and federal spending to decline modestly under newly imposed spending caps, at least until the aging of the population and rising costs for health care tilt the balance of spending upward again.

If Congress leaves current law unchanged, the report said, the deficit will fall to $585 billion in 2013 and $345 billion in 2014. In other words, doing nothing might be the most straightforward way for Congress to slash the deficit, a goal espoused by lawmakers in both parties.

However, the budget office said, such policy — implying higher taxes and constraints on spending — would crimp economic growth so that the unemployment rate, now 8.5 percent, would climb to 8.9 percent in the last quarter of this year and 9.2 percent in the final quarter of 2013.

Representative Eric Cantor of Virginia, the House Republican leader, called the deficit and unemployment news reason enough for a course change.

“We know that President Obama’s policies have failed to produce the economic growth needed to pay down these massive deficits that are creating uncertainty, preventing economic recovery, and harming job creation,” he said. “When something doesn’t work, you change it. Let’s try something new.”

The report’s economic outlook was a bit gloomier than a year ago both because the tax increases and spending cuts required under current law would dampen growth — and because economic troubles abroad may spill over to the U.S. economy.Douglas W. Elmendorf, director of the Congressional Budget Office, said that the fiscal tightening “will hold back economic growth” next year, but could add to the strength of the economy in the long run.

Assuming no change in current law, the budget office expects the economy to grow 2 percent this year and just 1.1 percent in 2013 (measured by the increase in the gross domestic product, after adjusting for inflation).

As a percentage of gross domestic product, this year’s deficit of $1.1 trillion, compared with last year’s $1.3 trillion shortfall, “will be 7.0 percent, which is nearly 2 percentage points below the deficit recorded last year but still higher than any deficit between 1947 and 2008,” the annual report said. “Over the next few years, projected deficits in C.B.O.’s baseline drop markedly, averaging 1.5 percent of G.D.P. over the 2013-2022 period.”

In the next few years, the deficit would still drop below $1 trillion and decline as a percentage of GDP even if Congress extended the Bush tax cuts and reversed other budget-balancing policies, according to the office’s alternative scenario, which uses assumptions other than the status quo. But the improvements would be less pronounced and would not endure as long.

The improving but still tepid performance of its baseline projection is reflected, too, in the share of the gross domestic product taken up by the national debt.

“With deficits small relative to the size of the economy, debt held by the public drops — from about 75 percent of G.D.P. in 2013 to 62 percent in 2022, which is still higher than in any year between 1952 and 2009.”

Some say that this year — or perhaps next year, after the election — changes are virtually certain to occur, one way or another.

Even under current law, the budget office said, the government will need to continue borrowing to fill the gap between spending and revenues, and the total federal debt — the accumulated total of such borrowing — will rise to $21.6 trillion in 2022, from its current level of $15.2 trillion. And net interest payments on the debt would nearly triple, to $624 billion, the report said.

The budget office said it would cost $5.4 trillion to continue major tax cuts enacted in 2001 and 2003 under President George W. Bush and scheduled to expire at the end of this year. President Obama and some Democrats want to continue many of those cuts for individuals with incomes under $200,000 a year and couples with incomes under $250,000 a year.

Many lawmakers say Congress must block impending cuts in Medicare payments to doctors, who face a 27 percent reduction in fees in March. Just to maintain Medicare payment rates at current levels, without an increase, would cost $372 billion over 10 years, compared with spending expected under current law, the budget office said.

The number of people receiving Social Security disability benefits has been increasing in recent years, and the budget office predicts that the disability trust fund will run out of money in 2016.

In addition, the budget office estimates that Medicare’s hospital insurance trust fund will be exhausted in 2022, two years earlier than the Obama administration predicted last May. Congress is considering a variety of steps to slow the growth of Medicare spending, but most provoke sharp disagreement between Republicans and Democrats.

http://www.nytimes.com/2012/02/01/us/politics/deficit-tops-1-trillion-but-is-falling.html?hp