But that reduction will be realized only if lawmakers allow a series of tax cuts and other temporary revenue measures to expire. The prospect of that happening is considered dicey by many analysts, given the divisive political environment in Washington.
The laws in question include the 2001 George W. Bush tax cuts; a measure aimed at limiting the bite of the alternative minimum tax; the payroll tax reduction now in effect; cuts in Medicare payment rates to doctors; and federal emergency unemployment benefits.
If those measures are extended — as they have been on multiple occasions — the average federal deficits from 2012 to 2021 would account for 4.3 percent of gross domestic product, compared with the 1.8 percent contemplated in the CBO’s projections.
Even if those laws all are allowed to expire, the CBO projected that the federal government will accumulate $3.47 trillion in new debt during the next decade. That increase is projected as the nation struggles to emerge from the recession that stunted economic growth and has thrown millions of Americans out of work.
The CBO report forecasts weak economic growth over the next few years, with the unemployment rate falling from 9.2 percent to 8.5 percent by the fourth quarter of 2012. The U.S. economy will grow by 2.3 percent this year and by 2.7 percent next year, the report said, and will grow an average 3.6 percent a year from 2013 to 2016.
But even those projections could prove optimistic, CBO Director Douglas W. Elmendorf said in a blog post. They do not take into account the recent gyrations in the financial markets and new weakness shown in a host of economic indicators.
“The United States continues to face profound budgetary and economic challenges,” Elmendorf wrote.
At $1.3 trillion, or 8.5 percent of the nation’s economic output, this year’s projected budget deficit would be the third highest in the past 65 years, surpassed only by the deficits registered in the past two years.
After contentious negotiations with the White House, Congress passed a deficit-reduction package this month that cuts spending by $917 billion over the next decade. The measure also established a bipartisan congressional committee charged with finding at least $1.5 trillion in additional savings by late November.
If the committee, which comprises six Republicans and six Democrats, can agree on a package of cuts, Congress must vote on it late this year. If lawmakers cannot agree, it will automatically trigger $1.2 trillion in spending cuts, affecting defense as well as a wide range of domestic programs.
House Budget Committee
Chairman Paul Ryan (R-Wis.) called the latest CBO report a warning “of the urgent need to get Washington’s fiscal house in order. This report confirms again that years of reckless overspending have not produced the economic growth or the jobs that the president promised and that American families need.”
Rep. Chris Van Hollen (Md.), the top Democrat on the Budget Committee, said the report highlights the need for lawmakers to come up with job-creation measures while working to reduce the long-term deficit.
“I look forward to working with my colleagues to develop a plan focused on boosting economic growth now and cutting the long-term deficit in a balanced way that addresses both the expenditure and revenue side of the budget equation,” he said.