Ahead of the Bell: US budget deficit

WASHINGTON (AP) -- The federal budget deficit through the first four months of the budget year is expected to be about $54 billion lower than last year.

The Congressional Budget Office expects the January deficit will total $2 billion and for the period from October through January, the CBO is looking for a deficit of $295 billion. That would be an improvement of $54 billion from the deficit run up during the same period a year ago. The government's budget years runs from Oct. 1 to Sept. 30.

Last week, the CBO released its latest estimate of the deficit for the entire budget year, projecting it would total $845 billion. If correct, that would mark the first time the deficit has been below $1 trillion during the Obama presidency. Even with the improvement, the government would be required to borrow 24 cents of every dollar it spends this year.

Part of the improvement projected by CBO reflects a budget deal that Congress and the Obama administration reached in early January to avert the so-called "fiscal cliff," the combination of steep income tax increases and across-the board spending cuts.

Under the January deal, the White House and Congress agreed to raise taxes on the wealthiest 2 percent of Americans. The agreement also allowed Social Security taxes to return to their normal levels. For the past two years, the Social Security payroll tax had been cut by 2 percentage points, resulting in a tax saving of $1,000 annually for someone earning $50,000 per year.

Under the January agreement, the government's borrowing limit was lifted through May 17, averting for the time being the threat of a first-ever default on the government's $16.4 trillion debt. The deal also delayed $85 billion in across-the-board spending cuts until March 1.

A third deadline facing Congress and the administration is a partial government shutdown after March 27, when a temporary resolution that is funding the government runs out.

President Barack Obama's presidency has coincided with four straight $1 trillion-plus deficits.

The deficit reached a record $1.41 trillion in budget year 2009, which began four months before Obama was inaugurated. That deficit was largely because of the worst recession since the Great Depression. Tax revenue plummeted, while the government spent more on stimulus programs.

The budget gaps in 2010 and 2011 were slightly lower than the 2009 deficit as a gradually strengthening economy generated more tax revenue.

President George W. Bush also ran annual deficits through most of his two terms in office after he won approval for broad tax cuts and launched wars in Afghanistan and Iraq. The last time the government ran an annual surplus was in 2001.

The CBO's latest outlook projected that the deficit would dip to $430 billion by 2015, the lowest since the government posted a $459 billion deficit in 2008, Bush's last full year in office.

But as more baby boomers retires and claim Medicare and Social Security and as Obama's health care law takes effect, the deficits would begin moving higher and would approach $1 trillion by 2023.

The budget arguments Republicans and Democrats are currently having are over ways to keep the deficits on a downward course. Republicans are insisting that further deficit reduction should trim the growth in spending in Social Security and Medicare and that taxes should not be increased further.

Obama has said he is willing to consider cuts in the growth of entitlement programs but argues that a balanced approach will require further tax increases on the wealthy.

Source: http://news.yahoo.com/ahead-bell-us-budget-deficit-112118465.html

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