US projects $1.2t deficit

WASHINGTON — The White House predicts this year’s federal budget deficit will end up at $1.2 trillion, marking the fourth consecutive year of trillion dollar-plus deficits during President Barack Obama’s administration.

By (AP)

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Published: Sun 29 Jul 2012, 10:08 PM

Last updated: Tue 7 Apr 2015, 11:48 AM

The bleak figures, while expected, are sure to add fuel to the already heated presidential campaign, in which Obama’s handling of the economy and the budget is a main topic. The deficit’s release came as the government announced that US economic growth slowed to an annual rate of just 1.5 per cent in the second quarter of this year, as consumers cut back sharply on spending.

The White House budget office also predicts for this year that the economy will grow at a modest 2.6 per cent annual rate and that the jobless rate will average eight per cent. It forecasts modest growth of 2.6 per cent next year — down from the three per cent it predicted in February — before rising to four per cent in 2014. Unemployment would remain above seven per cent through the end of 2014, registering at 7.3 per cent, the report predicts.

“The economic recovery that began in 2009 will continue at a moderate rate and unemployment will gradually decline,” Jeffrey Zients, the acting White House budget director said in a blog post. “The economy still faces significant headwinds,” he added.

The 2012 budget year ends on September 30. The White House also predicted that next year’s deficit will fall just short of $1 trillion, higher than it predicted in its February budget release. The predicted deficit for 2012 actually improved by $116 billion, but some of that was because Congress didn’t enact much of Obama’s jobs plan. But the White House promises deficits will drop to about three per cent of the size of the economy by 2017, in part through $1.5 trillion in tax increases over the coming decade.

The White House report — released on Friday afternoon with the Olympics poised to distract voters for two weeks — again trumpets Obama’s longstanding approach to tackling the deficit. It includes tax increases on families earning above $250,000, already enacted “caps” on agency operating budgets and modest savings from federal benefit programs like Medicare.

“Since taking office, the president has worked to restore fiscal responsibility,” says the OMB report.

Republicans scoffed, noting that Obama has violated his promise to wrestle the deficit in half by the end of his term. “The president’s string of broken promises on our nation’s fiscal challenges weighs heavy on an anemic economy,” said House Budget Committee Chairman Paul Ryan, a Wisconsin Republican. “The president’s commitment to ever-higher government spending and his failure to deliver on his economic promises have resulted in the fourth-straight budget deficit in excess of one trillion dollars.”

Under Obama’s budget plan, the total US debt would reach $16.2 trillion by the end of the year and soar to $25.4 trillion at the end of a decade’s time.

“America can have robust economic growth — and avert a catastrophic debt crisis — but it requires a credible fiscal plan and the leadership necessary to achieve it,” said top Senate Budget Committee Republican, Jeff Sessions of Alabama.

The government is likely to reach its borrowing cap — the subject of a fierce fight last summer between Obama and Republicans — late this year or early next year, which is going to require the next Congress and either Romney or Obama to act together to increase the borrowing cap. That is seen by many as an opportunity to force lawmakers to finally tackle the country’s major budget problems.

Also looming is the so-called fiscal cliff, a combination of big tax increases and deep, automatic budget cuts slated to begin in January unless Obama and congressional Republicans step in to block them this fall or during a postelection session of Congress. Many economists say that if the government plunges over the fiscal cliff it could drive the economy back into recession.

Romney, for his part, offers relatively few specifics on the budget but promises to bring total government spending down to 20 per cent of the U.S. economy by the end of a first term in 2016. That is roughly in line with where it was during Republican George W. Bush’s presidency. Government spending now equals 24 per cent of gross domestic product.

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