CBO tallies US 2012 deficit at $1.1 trillion

WASHINGTON—A new estimate puts the deficit for the just-completed 2012 budget year at $1.1 trillion, the fourth straight year of trillion-dollar deficits on President Barack Obama’s watch. The result was a slight, $207 billion improvement from the 2011 deficit of $1.3 trillion.

The bleak figures from the Congressional Budget Office, while expected, add fodder for the heated presidential campaign, in which Obama’s handling of the economy and the budget is a main topic. Friday’s release came as the government announced that the unemployment rate dropped to 7.8 per cent last month, matching the rate when Obama took office.

“President Obama once promised to cut the deficit in half by the end of his first term, but...he’s broken that promise, and has presided over his fourth straight trillion-dollar budget deficit,” said Republican vice presidential nominee Rep Paul Ryan.

“The President’s reckless spending habits have burdened the American people with another $5.4 trillion in debt while failing to bring a real recovery for the 23 million Americans struggling for work or the 15 per cent of Americans living in
poverty.” The 2012 deficit was seven per cent of the size of the economy, an unsustainably high level. The figure is lower than the first three years of Obama’s presidency, but higher than any other year since 1947.

The administration will release the official deficit numbers around mid-October, but they should line up closely with the CBO estimate, which showed that the government borrowed 31 cents for every dollar it spent.

The CBO estimate predicts a modest three per cent increase over 2011 in both income tax and payroll tax receipts, reflecting the sluggish economic recovery. Corporate income tax receipts are way up—almost 34 per cent—but most of that is a result of tax rules governing write-offs of business equipment.

Spending fell across a broad array of categories, the CBO said, but not Social Security and Medicare. Social Security payments rose by 6 percent, while Medicare grew by three per cent, slightly less than in prior years.

Lower war costs meant a three per cent decline in defense outlays, however, and the cost of unemployment benefits dropped 24 per cent because fewer people have been receiving benefits recently. Medicaid costs dropped as well, because
the federal government stopped paying a higher share of the programme’s costs.

Congress is looking toward addressing the deficit at the end of the year, but any such effort would actually increase the deficit since lawmakers promise to restore most or all of Bush-era tax cuts that are set to expire December 31. Lawmakers also want to head off $109 billion worth of automatic spending cuts set to hit the Pentagon and domestic programmes in January.

Republicans and Democrats disagree on whether part of the effort to replace this so-called sequester should include tax increases on upper-income earners.