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CBO projects U.S. budget deficit to reach $1.5 trillion in 2011, highest ever
In a briefing for reporters, CBO director Douglas Elmendorf said the primary reason for the reversal is the tax package Obama and congressional Republicans negotiated in December. That measure extended the George W. Bush-era tax cuts through 2012, created an unprecedented new investment credit for businesses and cut payroll taxes for every American worker.
The bill also extended emergency unemployment benefits through the end of December, but the tax cuts account for the bulk of the bill's cost. According to CBO estimates, the measure will reduce revenues by more than $350 billion this year, accounting for virtually the entire increase in the deficit forecast since the CBO's last projection in August.
The tax package, combined with the effects of the recession and massive spending to boost the economy, has dramatically driven up the national debt, which is the accumulation of deficits incurred throughout the nation's history.
The amount the nation owes public investors, including nations such as China, has risen from about 40 percent of the economy in 2008 to nearly 70 percent this year, the CBO said.
Without "significant" changes in spending patterns, tax policy or both, Elmendorf said, the nation will probably have to borrow an additional $12 trillion through 2021, pushing the total debt held by outside investors to nearly 100 percent of the economy and leaving the country deeper in debt than at any time since 1946.
Call for amendment
In response to the gloomy forecast, Republicans led by Sen. Orrin G. Hatch (R-Utah), the senior Republican on the Senate Finance Committee, and Sen. John Cornyn (R-Tex.) called for a balanced-budget amendment that would cap federal spending at 20 percent of the economy, significantly lower than the current 25 percent of gross domestic product. It would also prohibit tax increases unless approved by two-thirds of lawmakers in both the House and Senate.
Meanwhile, in the House, a group of Republicans anticipated a looming fight over the legal limit on government borrowing by introducing legislation that they said would help prevent a government default. Members of the Republican Study Committee, who oppose raising the legal cap on borrowing, said the measure would direct Treasury Secretary Timothy F. Geithner to pay principal and interest to the nation's creditors before making any other government payments.
"A pitiful scare tactic already being used by the Treasury secretary in the debt ceiling debate is the threat of allowing the federal government to default on its obligations," said Rep. Jim Jordan (R-Ohio), the committee's chairman. "This bill will take Secretary Geithner's disastrous scenario completely off the table."
Democrats dismissed the legislation as a terrible idea that would force the Treasury to "pay China first" while ignoring Americans who need, for example, Social Security checks. Elmendorf said paying principal and interest on the debt would not necessarily protect the nation's financial reputation.
"It is possible for the Treasury to decide which obligations would not be honored if there's not enough money to honor all of them," he said. "But that is still default."