The U.S. government has to do something about entitlement programs to get its financial affairs in order, rating analysts say.
Federal fiscal year 2012 starts Oct. 1.
The Obama administration has proposed increasing taxes on high earners after 2012 and freezing “discretionary spending” – such as spending on education, food stamps and financial services regulation.
Those proposals could provide some stability, but Congress and the administration already have put the country on track for higher deficits by agreeing to extend unemployment benefits, cut the Social Security payroll tax for 2 years, and extend the Bush-era tax cuts for 2 years, according to Steven Hess and other analysts at Moody’s Investors Service, New York.
As a result of those decisions, the deficit will increase to 10.9% of gross domestic product (GDP) in fiscal year 2011, from 8.9% in fiscal year 2010, and the deficit will still amount to 7% of GDP in fiscal year 2012, the analysts say.