Ahead of the Bell: Budget Deficit

AP News
Posted: May 10, 2012 6:16 AM
Ahead of the Bell: Budget Deficit

The U.S. budget deficit is likely running slightly lower than last year's deficit through the first seven months of the budget year. But it's still on track to top $1 trillion for a fourth straight year.

Those deficits are putting pressure on Congress and President Barack Obama in an election year.

For April, the Congressional Budget Office is projecting that the government's books will post a rare surplus, reflecting the flood of tax revenue from the annual deadline for tax returns.

However, the CBO is forecasting a deficit of $1.17 trillion for the entire 2012 budget year, which began Oct. 1.

This would be a small improvement from last year's $1.3 trillion deficit. Still, the chronic budget deficits are likely to be a top issue in the presidential election.

Democrats and Republicans are offering voters stark choices on the budget.

Obama's budget request in February called for $4 trillion in deficit reduction over the next decade, achieving that target with a mix of spending cuts and revenue increases. Central to Obama's plan is to let Bush-era tax cuts expire for couples making more than $250,000. That would generate more than $700 billion over 10 years.

Obama would also set a 30 percent tax rate on taxpayers making more than $1 million. The administration estimates that would generate about $47 billion over 10 years.

Republican challenger Mitt Romney would cap federal spending at 20 percent of gross domestic product by end of first term. Spending is estimated to be about 23.5 percent of the total economy this year. Romney has proposed broad but largely unspecified cuts in spending. He opposes Obama's tax increases.

Romney would like to cut the federal workforce by 10 percent, but he has not provided specifics on the bulk of the cuts needed to achieve his budget targets.

A budget approved by the GOP-controlled House calls for deep cuts in Medicare and other programs and a new round of tax cuts that would most benefit wealthy Americans. Obama has called that spending plan "thinly veiled social Darwinism" and a radical vision for the country.

The House-passed budget has no chance of winning Senate approval, setting the stage for gridlock until after the November elections.

The government last recorded a surplus in 2001. The deficits returned after President George W. Bush won approval for broad tax cuts, pushed a major drug benefit program for seniors and launched wars in Afghanistan and Iraq.

The deficits grew further under Obama as the Great Recession reduced tax revenue as unemployment rose and income fell. The budget gaps have topped $1 trillion in each of his first three years in office.

Congress and the White House have struggled to agree on changes to tax levels or spending programs that would reduce the deficit. They will face another big challenge at the end of this year. That's when tax cuts enacted by the Bush administration in 2001 and 2003 are set to expire.

A set of automatic spending cuts totaling about $1.2 trillion over 10 years are also scheduled to kick in. Both parties oppose the automatic spending reductions, in part because they include deep cuts in defense.