WASHINGTON (AP) — The federal budget deficit will drop below $1 trillion for the first time in President Barack Obama's tenure in office, a new report said Tuesday.
The Congressional Budget Office analysis said the government will run a $845 billion deficit this year, a modest improvement compared to last year's $1.1 trillion shortfall but still enough red ink to require the government to borrow 24 cents of every dollar it spends.
The agency projected that the economy will grow just 1.4 percent this year if $85 billion in across-the-board spending cuts take effect as scheduled March 1. Unemployment would average 8 percent. Obama wants to ease the cuts by replacing them with new tax revenue and alternative cuts, but a clash is looming with Republicans who insist that last month's tax increase on wealthier earners will be the last tax hike they permit.
The report predicted the deficit would dip to $430 billion by 2015, the lowest since the government posted a $459 billion deficit is former President George W. Bush's last year in office. That would be a relatively low 2.4 percent when measured against the size of the economy.
But as more and more baby boomers retire and claim Medicare and Social Security and as Obama's health care law takes effect, deficits would move higher and again reach near $1 trillion in the latter portion of the 10-year window — despite the recently enacted tax increase on family income exceeding $450,000 and automatic spending cuts of about $100 billion a year. The package of spending cuts and tax increases are punishment for Washington's failure to strike a long-term budget pact.
"We need to continue working to cut spending responsibly, protect and strengthen programs like Medicare, and raise revenue by closing tax loopholes that the wealthiest Americans and biggest corporations take advantage of," said Senate Budget Committee Chairman Patty Murray, D-Wash.
Over the coming decade, the deficit would total $7 trillion but would move higher if lawmakers extend expiring business tax breaks and rescue doctors from cuts to their reimbursements under Medicare.
The report provided fresh fodder for Washington's familiar battles over the budget, deficits and debt. Obama inherited an economy in crisis and first-ever deficits exceeding $1 trillion. The 2009 deficit, swelled by the costs of the Wall St. bailout, hit a record $1.4 trillion, while the deficits of 2010 and 2011 both registered $1.3 trillion.
Economists say that too-high deficits and debt are a drag on the economy and could eventually precipitate a fiscal crisis like many European countries are experiencing.
"The CBO's report is yet another warning that we need to get spending under control. The deficit is still unsustainable," said House Budget Committee Chairman Paul Ryan, R-Wis. "By 2023, our national debt will hit $26 trillion. We can't let that happen. We need to budget responsibly, so we can keep our commitments and expand opportunity."