The weak economy and fresh tax cuts approved last month will help drive the federal budget deficit to nearly $1.5 trillion this year, the biggest budget gap in history and one of the largest as a share of the economy since World War II, congressional budget analysts said Wednesday.
"Economic developments, and the government's responses to them, have - of course - had a big impact on the budget," the Congressional Budget Office said in its semi-annual budget outlook.
This year's deficit would be the highest on record and would equal about 9.8 percent of the economy, the CBO said, slightly smaller than the 2009 budget gap, which at $1.4 trillion amounted to nearly 10 percent of the gross domestic product. However, at a time when policymakers had hoped to begin closing the gap between spending and revenues, the CBO forecast that it is widening again and is on track to remain well above $1 trillion in 2012, the fourth year in a row.
As a result, the report said, "debt held by the public will probably jump from 40 percent of GDP at the end of fiscal year 2008 to nearly 70 percent at the end of fiscal year 2011."
If current laws remain unchanged, according to the report, budget deficits "would drop markedly over the next few years as a share of output," averaging 3.6 percent of GDP from 2012 through 2021 and totaling nearly $7 trillion over the decade. However, that projection assumes all the Bush tax cuts will expire in 2012 and that Congress will make other changes to raise taxes -- an uncertain bet.
"CBO's report should be another wake-up call to the nation," Sen. Kent Conrad (D-N.D.) chairman of the Senate Budget Committee, said in a statement. "The fiscal challenge confronting us is enormous.... We need everyone at the table. And we need to have both sides, Democrats and Republicans, willing to move off their fixed positions and find common ground."
Rep. Chris Van Hollen (D-Md.), a ranking member of the House Budget Committee, said the report showed that "much more work still needs to be done" to tackle the deficit.
"There is no question that we must act to put a long-term, bipartisan plan in place for deficit reduction, and the president took another important step with some serious belt-tightening proposals in the State of the Union last night," Van Hollen said in a statement. "But we also know that blindly slashing investments in important priorities that will help us win the future will slow down our fragile economic recovery and put more people out of work. "