WASHINGTON (AP) — A new estimate from congressional economists says the government will run a $1.2 trillion deficit for the budget year ending Sept. 30.
That would make federal fiscal year 2012 the fourth straight year of trillion dollar-plus deficits.
The almost $100 billion spike from earlier projections for the fiscal 2012 deficit comes almost exclusively because Congress passed legislation recommended by President Barack Obama to renew a 2-percentage point cut in payroll taxes and jobless benefits for people languishing on unemployment rolls for more than 6 months.
In fiscal year 2011, the deficit was $1.3 trillion.
The Congressional Budget Office report is just the latest confirmation of the government’s severe fiscal problems. While the official CBO forecast predicts the deficit sliding to just 1 percent of the size of the economy within a few years, that estimate relies on revenues averaging about $500 billion a year over the coming decade — mostly from expiration of Bush-era tax cuts on income, investments, large estates and for families with children.
Obama and Republicans alike agree on extending the bulk of the Bush-era tax cuts when they expire at the end of the year. A battle is set, however, on whether to extending income tax rate cuts on income in excess of $200,000 a year for individuals or $250,000 a year for couples.
If the Bush tax cuts are renewed, CBO says, and if automatic spending cuts mandated by last year’s budget and debt pact are waived as seems possible, annual deficits would average more than $1 trillion a year over the coming decade and would, economists says, eventually spark an economic crisis.