The federal government this year will run a budget deficit well in excess of $1 trillion for the fourth consecutive year, according to an Obama administration mid-year budget review, amid continued harsh economic times and strong partisan wrangling over spending policy.
For fiscal year 2012 that will end on Sept. 30, the deficit is now projected to be $1.211 trillion, or $116 billion lower than the $1.327 trillion deficit projected in February, according to the Office of Management and Budget’s Fiscal Year 2013 Midsession Budget Review. That compares with deficits ranging from a high of $1.4 trillion in fiscal 2009, to $1.29 trillion in both fiscal 2010 and 2011.
The mid-year report, which was quietly released Friday afternoon, also contains slightly revised economic forecasts projecting that the economic recovery that began in 2009 will continue at a moderate rate and that unemployment – currently 8.2 percent and holding -- will gradually decline.
The new report was released the same day that the Commerce Department reported continued sluggish economic growth. President Obama said in a statement accompanying the OMB report that in the year ahead, “I will continue to pursue policies that will shore up our economy and our fiscal situation.” He said that together with the deficit reduction policies he signed into law last summer , deficit spending will decline by $4 trillion over the coming decade.
“This will put the country on a course to a level of deficits below 3 percent of GDP by the end of the decade, and will also allow us to stabilize the Federal debt relative to the size of the economy,” Obama said. “To get there, this budget contains a number of steps to put us on a fiscally sustainable path.”
Last summer’s budget control legislation, enacted as part of an agreement between the White House and congressional Republicans to raise the national debt ceiling, imposed immediate deficit reduction totaling $1 trillion and called for an additional $1.2 trillion of deficit savings in the coming decade either approved by lawmakers or automatically imposed through a process called sequestration.
Sequestration would require across the board cuts equally divided between defense and domestic discretionary spending. But many Republicans and some Democrats in Congress are opposed to the more than $500 billion of across the board cuts in the Pentagon’s budget that will take effect beginning in January unless Congress changes the law.
Those spending issues are caught up in the larger election year battles between Democrats and Republicans over spending and tax issues. Obama and congressional Republicans continue to fight over whether wealthier Americans should pay more in taxes to help reduce the deficit – an approach that the president and most of his Democratic allies favor but that is strongly opposed by the Republicans, including Mitt Romney, the presumptive presidential nominee..
In response to the Administration’s Midsession Review, House Budget Committee Chairman Paul Ryan, R-Wis., said that the report confirms the continued failure of the Obama administration’s economic policies.
“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,” said Ryan, who has been mentioned as a possible running mate for Romney.
“The Administration’s lack of seriousness when it comes to responsibly prioritizing taxpayer dollars is unconscionable.,” he added. “In the face of continued economic pain and a debt crisis ahead, the President refuses to chart a new course. Instead of taking more from hardworking Americans and small businesses, policymakers must advance principled pro-growth solutions that spur job creation, lift the crushing burden of debt, and expand opportunity for generations to come.
Jeffrey Zients, acting director of the OMB, said the administration deserves credit for much of the improvement in the economic picture since late 2008, when the country was in the midst of the worst recession since the Great Depression. The report credits the American Recovery and Reinvestment Act and other growth-creating legislation promoted and signed into law by the President. However, the mid-session review also notes the economy still faces significant headwinds that have held down growth and limited gains in employment.
“Enactment of some of the President’s proposals to promote near-term economic and job growth in the face of such headwinds has been delayed by Republicans in Congress,” Zients said. “The [Mid-Session Review] assumes these proposals, which have traditionally earned bipartisan support, will still be enacted. The delayed enactment shifts costs into later years, accounting for part of the expected drop in the 2012 deficit and some of the small increase in the 2013 deficit compared to the February projection.
With the enactment of these measures, the report projects real Gross Domestic Product will grow at a rate of 2.3 percent in 2012 and 2.7 percent in 2013 (year over year). The MSR then projects stronger growth for 2014 through 2018, as the economy absorbs unused capacity and returns to its potential. In the long run, the MSR projects real GDP growth to average 2.5 percent, which is unchanged from previous forecasts.
The economy grew at a dismal 1.5 percent in the second quarter of this year, a cruel reminder that nearly nothing tried so far—tax cuts, deficit spending, spending cuts , slashed interest rates—has worked to turn around the economy.
Figures released Friday morning by the Commerce Department showed a country without the propulsion needed to escape the clutches of a recession that technically ended three years ago. Consumer spending increased at the slowest pace in a year, with purchases of big ticket items like home appliances and cars falling by 1 percent.