Budget Deficit Expected to Top $1 Trillion for First 10 Months of Fiscal 2011
WASHINGTON (AP) - The federal budget deficit is expected to top $1 trillion through the first 10 months of this budget year, giving the country its third consecutive $1 trillion plus deficit.
The Congressional Budget Office is estimating that the deficit in July will total $132 billion. If that forecast is correct, it would push the imbalance so far this budget year to $1.1 trillion with two months left in the 2011 budget year. The Treasury Department is scheduled to release the new report at 2 p.m. EDT Wednesday.
The third straight $1 trillion-plus deficit will add pressure on Congress and a new "super committee" composed of 12 lawmakers who have been given the task of coming up with at least $1.2 trillion in budget savings over the next decade.
That panel, composed of six Democrats and six Republicans, is due to report by Thanksgiving. If the panel splits and cannot agree on a plan, severe across-the-board spending cuts would go into effect automatically.
The committee was part of legislation Congress approved last week at the 11th-hour to boost the nation's borrowing limit and avert an unprecedented default on the country's debt.
The legislation sets as a target achieving $2.1 trillion to $2.4 trillion in deficit cuts over the next decade. However, this would fall short of the $4 trillion in cuts that credit rating agency Standard & Poor's has said are needed to achieve a credible deficit plan.
Citing the smaller size of the budget package approved by Congress and the political "brinksmanship" on display in the prolonged battle over raising the debt limit, S&P last week announced the first-ever downgrade of the U.S. government's credit rating, reducing the rating for long-term debt a notch to AA+ from AAA. S&P officials have warned of further downgrades if Congress fails to achieve the budget savings envisioned in its plan.
For the current budget year, which ends Sept. 30, the budget deficit is expected to hit $1.35 trillion, according to economists from big Wall Street banks surveyed by the Treasury Department last week.
That would mark a wider deficit than last year's imbalance of $1.29 trillion although it would be below the all-time high of $1.41 trillion set in 2009.
Before 2009, the deficit had never come close to $1 trillion in a single year. The soaring deficits have reflected increased government spending in response to a deep recession plus a loss of tax revenues as millions of people lost their jobs.
The huge deficits prompted a political backlash that allowed Republicans to take control of the House in last year's elections. While both parties say they are committed to reducing the deficits, Republicans are opposed to tax increases and Democrats are fighting to protect entitlement programs such as Social Security and Medicare from big cuts.
Through the first 10 months of the current budget year, CBO is estimating that the deficit is running $66 billion below last year's pace for the same period. CBO estimates that receipts through July are running 8 percent above last year's pace, reflecting primarily higher income tax revenue as some of the people who lost jobs during the downturn go back to work.
The CBO estimates that government spending through July is running 2.5 percent higher than a year ago with rising costs for entitlement programs being partially offset by smaller payments for unemployment benefits.