By Erik Wasson – 01/31/12 10:00 AM ET

The Congressional Budget Office on Tuesday predicted the budget deficit will rise to $1.08 trillion in 2012.

CBO also projected the jobless rate would rise to 8.9 percent by the end of 2012, and to 9.2 percent in 2013.

These are much dimmer forecasts than in CBO’s last report in August, when the office projected a $973 billion deficit. The report reflects weaker corporate tax revenue and the extension for two months of the payroll tax holiday.

A rising deficit and unemployment rate would hamper President Obama’sreelection effort, which in recent weeks has seemed to be on stronger footing.If the CBO estimate is correct, it would mean that the United States recorded a deficit of more than $1 trillion for every year of Obama’s first term.

The deficit was $1.4 trillion in 2009, $1.3 trillion in 2010 and $1.3 trillion in 2011. The largest deficit recorded before that was $458 billion in 2008.

CBO had forecast an 8.5 percent unemployment rate for the end of 2012 in its August report. It now expects the jobless rate to be higher, and to still be at 7 percent in 2015.

The higher unemployment numbers are due to lower economic growth than previously estimated. Gross domestic product for 2011 is now estimated to have grown 1.6 percent in 2011, down from the 2.3 percent forecast in August. CBO a year ago had predicted 3.1 percent growth for 2011.

The outlook for 2012 has also worsened. GDP is forecast to grow only 2 percent this year, compared to a previous estimate of 2.7 percent.

Budget cuts from the August debt deal, and projected tax increases set to kick in when the Bush tax rates expire at the end of the year, will “restrain economic growth this year and significantly restrain growth in 2013,” according to CBO. But it says the fiscal prudence will help growth in the out years.

It is unclear whether the Bush tax cuts will be allowed to expire. Republicans want all of the tax rates to be extended, and the White House wants Bush tax rates for families with annual income below $250,000 to be extended.

Gross federal debt would rise from $14.8 trillion at the end of 2011 to $21.7 trillion under CBO’s projections.

CBO uses a “current policy” baseline that assumes the Bush-era tax rates will not be extended after 2013, however.

The deficit will be much higher if Congress takes several actions that many expect.

If the Bush tax rates are extended, for example, the deficit would rise.

It will also rise if Congress patches the Alternative Minimum Tax, which lawmakers have routinely done to prevent higher taxes from being imposed on middle class taxpayers.

It would also rise if Congress continues to pass the “doc fix” that prevents a cut to Medicare payments to doctors, something that Congress has done on a near annual basis.

Finally, if Congress does not follow through on cuts mandated by the failure of the debt supercommittee, the deficit will grow. Lawmakers are already talking about cancelling scheduled cuts to the Pentagon’s budget.

In the “alternative fiscal scenario” where these things happen the gross federal debt rises to $29.4 trillion by 2022.

Obama will release his 2013 budget request on Feb. 13. He is expected to included in it recommendations for reducing the deficit by $4 trillion over a decade and to call for the end of Bush era tax rates for the wealthy.

By the end of March, House Republicans plan to vote on their alternative budget, authored by House Budget Committee Chairman Paul Ryan (R-Wis.). Ryan hopes to release a budget similar to his 2012 budget which reforms Medicare into a private insurance system for future retirees.

“With four straight years of trillion-dollar deficits, no credible plan to lift the crushing burden of debt, and a Senate majority that has failed to pass a budget for over 1,000 days, the president and his party’s leaders have fallen short in their duty to tackle our generation’s most pressing fiscal and economic challenges,” Ryan said in reaction to the CBO report.

This story was updated at 10:27 a.m.


Add New Comment

Optional: Login below.

Image

Showing 10 of 56 comments

Real-time updating is paused. (Resume)
  • What great news for America!  So much for Hope and Change. Now let’s change the man in the White House. Are you be off now than three years ago, NO ! NO! NO!
  • Obama’s America. Welcome to the “Yes We Can”
  • William Dierker 1 hour ago
    I would avoid the WH press corp too if I had Obama’s record.
  • Obama shouldn’t worry. He just chatted with Diane “The OWS protestors are in 1000 countries” Sawyer. Diane gave the President such hard hitting questions like “Who do think will win the Super Bowl?” and “Do you think Newt Gingrich is a racist for calling him ‘The Food Stamp President’?” That’s Diane, always getting the information people want.No questions on Solyndra, or Fast and Furious, or his trillion dollar deficits. Those don’t seem to be a problem for Diane.

  • Goldman Sachs predicitions for 2012::: Unemployment up to 9.0%; GDP 1.8%; Gold up to $1950; Oil up to $127 Barrel……………………………………
  • DebbieSmith1956 1 hour ago
    The United States debt-to-GDP ratio has now passed the 100 percent mark, a level that many economists regard as a danger point. With looming demographic issues facing Washington, even slightly higher spending on Medicare and Medicaid over the next decades could result in primary deficits in excess of 20 percent of GDP as shown here:http://viableopposition.blogsp…

    That is the point where the debt problem will come home to roost. Unfortunately, it will be far too late to do anything about it.

  • You are 110% correct.I have been posting this senario for some time now.Progressives on this site that defend this administration’s policies either don’t understand what extremely high debt to GDP does to our country or God forbid they actually want the country to collapse.You Progressives tell me why running deficits of 1.1 to 1.4 trillion dollar deficits each year is good for the country.I can’t run deficits every year and survive,how can this country?
  • “The deficit was $1.4 trillion in 2009, $1.3 trillion in 2010 and $1.3 trillion in 2011. The largest deficit recorded before that was $458 billion in 2008.”SAYS IT ALL.  This Pres is a huge mistake.

  • How’s that Hopey, Changey stuff workin’ out for ya?
  • This past Friday, GDP was reported. For all 2011, the economy grew at 1.7 percent while our national debt grew 8 percent and we lost our AAA credit rating. If debt grows faster than output it will always eventually lead to insolvency.  As a nation, we must reign in spending.  Eventually our creditors will wise up and cut us off, at which time we will be forced to face economic realities whether we want to or not.Ron Paul is the only candidate offering spending cuts. $1 Trillion. The deficit has exploded higher to the point that issuance is outrunning foreign purchases.  A large portion of this issuance has been bought by the Federal Reserve.  The Federal Reserve has stepped in and bought trillions of dollars of US debt issued by the US Treasury or agencies of the Federal Government. In 2011, interest on the national debt was $454 billion. If interest rates were the same as they were in 1995, our interest payments on our national debt would have exceeded $1 trillion in 2011 and none of that is reducing the principle balance. That is solely interest on our nation’s debt.

    Our national debt now stands at over $15 trillion and now equals our GDP. It is increasing at 8 percent a year, far outpacing the annual growth in GDP.  Our national debt is over $2,000 for every person in the world! That is an enormous amount of debt!

    70 percent of our public debt matures within 5 years.  In my opinion, financing long-term liabilities with short-term debt is desperate and risky. If interest rates rise only a small amount, it will consume all discretionary spending.

    What are we getting for all this debt we are incurring? More wars? A safer world? Do American’s want to be the policeman of the world or nation builders? Are these American ideals?  Isn’t it folly to think America can afford these ideals? If we embrace such ideals, how can we not understand when we get labeled as being imperialistic? How can this foreign intervention not foster anti-Americanism and radicalism? Are we really more safe or less safe under such a foreign policy? Admiral Mike Mullens, chairman of the Joint Chiefs of Staff, stated the single biggest threat to national security is the national debt.

    Profligate government spending affects all Americans.  Whether you are Republican or Democrat, the interest paid will consume the national budget and will affect everything from not only defense spending, but also Medicare, Social Security and other government programs.

Finance & Economy News

Finance & Economy News Archive »
On The Money Twitter - Click to follow

On The Money
Most Popular Stories

Most Viewed
Emailed
Discussed

CBO: Federal workers better compensated than in private sectorRepublican lawmakers begin pushback against Obama recess appointments CBO projects $1.08T deficit, 8.9 percent jobless rate in 2012Consumer complaints already pouring into CFPBSenate Dem calls out Citibank on airline miles

bloglogo

More Briefing Room »

More Congress Blog »

More Pundits Blog »

More Twitter Room »

More Hillicon Valley »

More E2-Wire (Energy) »

More Ballot Box »

More On The Money »

More Healthwatch »

More Floor Action »

More Transportation »

More DEFCON Hill »

Get latest news from The Hill direct to your inbox, RSS reader and mobile devices.
Home | Privacy Policy | Terms & Conditions | Contact | Advertise | RSS | Subscriptions
The Hill 1625 K Street, NW Suite 900 Washington DC 20006 | 202-628-8500 tel | 202-628-8503 faxThe co
Advertisements