Ahead of the Bell: Budget deficit

The federal budget deficit is likely to show an improvement in December compared to a year ago, but private economists are still forecasting that the deficit for the entire year will be well above $1 trillion.

Economists are forecasting that the December deficit will total $84 billion. The Treasury Department is scheduled to release the budget report for December at 2 p.m. EST Wednesday.

If the private estimate proves correct for December, it would give the government a deficit through the first three months of the current budget year of $374.8 billion. That would mark an improvement of 3.4 percent from the $388.1 billion deficit run up in the first three months of the previous budget year.

However, private analysts expect higher monthly deficits down the road because of the tax relief package Congress passed in December.

That measure extended the Bush tax cuts for two years, reduced the Social Security payroll tax for one year and provided more generous tax benefits for companies making investments in new equipment.

Economists at Goldman Sachs are forecasting that the deficit for the 2011 budget year will total $1.3 trillion, giving the country a third consecutive year of $1 trillion-plus deficits.

The deficit for the 2010 budget year, which ended Sept. 30, was $1.29 trillion and that followed an all-time high deficit of $1.41 trillion in 2009.

The Obama administration last June forecast that the deficit for this year would hit $1.42 trillion and projected that the deficits over the next decade would total $8.5 trillion. That forecast will be updated when President Barack Obama sends his new budget to Congress next month.

Republicans took control of the U.S. House and gained seats in the Senate as a result of the November elections in which unhappiness over soaring budget deficits was a major issue in the minds of voters.

Republicans are vowing to bring the deficits under control with a major assault on government spending. One of the first battles in this area is likely to occur when the Congress faces the need to increase the debt ceiling.

Treasury Secretary Timothy Geithner informed Congress last week that the current debt ceiling of $14.3 trillion will be hit sometime between March 31 and May 16. He warned that a failure to raise the limit would result in the government defaulting on its debt obligations, something that it has never done before.

He said such a default would have "catastrophic economic consequences" that would surpass the economic turmoil from the financial crisis of 2008 and early 2009.

Republicans, however, have said they will force Democrats to agree to spending cuts before they will vote to boost the national debt.