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Budget Deficit Projected To Hit $1.5 Trillion Thanks, In Part, To Tax Cut Extension

The day after the State of the Union Address, the Congressional Budget Office is out with a sobering forecast:

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 revenue, 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.”

That light at the end of the tunnel? Yea, it’s beginning to look like an oncoming train.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Alex Knapp says:

    The solution is simple: cut taxes!

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  2. Patrick T. McGuire says:

    Tax cuts do not create defecits. By definition, a defecit is caused by spending more than is collected in revenues. Anyone with a credit card “defecit” knows that it is from spending too much, not from insufficient income.

    Like or Dislike: Thumb up 1 Thumb down 0

  3. john personna says:

    Patrick, your paragraph is nonsense.


    surplus = income - spending

    deficit = spending - income

    period.

    To say that income matters more (or less) than spending in that equation is to deny mathematics.

    Like or Dislike: Thumb up 0 Thumb down 0

  4. Axel Edgren says:

    “Tax cuts do not create defecits. By definition, a defecit is caused by spending more than is collected in revenues.”

    In a normal country, yes. But America is not normal.

    You are assuming that democrats raise spending without raising tax levels and that republicans never lower taxes without lowering spending. You are making an ASS out of U and, well, I’m too smart to do anything but giggle at your spiel.

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  5. If there’s a deficit, any supposed tax cuts are just an accounting trick; the government is still consuming whatever portion of economic production it is consuming. All lowering the tax rate does is hide that consumption in the increase in the money supply.

    All the Republican “tax cuts” have done is devalue the currency so they can trick people into thinking they get to keep more. Really all they’re getting is a bigger pile of less valuable dollars.

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  6. anjin-san says:

    Thank God the fiscally responsible conservative Republicans control Congress, eh?

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  7. Dodd says:

    Not one dime of the deficit is ’caused’ by not raising taxes. Every dime of it is caused by spending more than revenue. That’s the definition of a deficit.

    Maintaining the Bush tax rates is only a ’cause’ of deficits if we believe it’s all the government’s money and it just lets us keep some, rather than the other way around.

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  8. mantis says:

    Not one dime of the deficit is ’caused’ by not raising taxes

    No, but a lot is caused by lowering them. Did you forget they got lowered just a few years ago? That’s where the deficit comes from (in part). The fact that we didn’t let the temporary cuts elapse does, in fact, factor into our projected deficit.

    Every dime of it is caused by spending more than revenue.

    Revenue is taxes. Lower taxes is less revenue. Why do libertarians have to act so stupid? Is it not an act?

    Maintaining the Bush tax rates is only a ’cause’ of deficits if we believe it’s all the government’s money and it just lets us keep some, rather than the other way around.

    Maintaining the Bush tax rates and keeping our spending levels the same will cause greater deficits. As you already note (and quickly forget), there are two variables in the equation. You can’t pretend one doesn’t count.

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  9. Not one dime of the deficit is ’caused’ by not raising taxes.

    No, but decreasing the amount of revenue that the government takes in without also cutting spending by an equal or greater amount will inevitably lead to a deficit.

    The tax cut extension was a political inevitability in December, but it wasn’t exactly fiscal conservatism to not cut spending at the same time.

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  10. MichaelW says:

    No, but decreasing the amount of revenue that the government takes in without also cutting spending by an equal or greater amount will inevitably lead to a deficit.

    It was decreased — the federal income tax rates remained the same. In fact, new taxes were passed via Obamacare, which were supposed to offset the costs of the program somewhat.

    The real problem is that vastly greater spending since Oct. 2008, on top of the massive amounts all ready spent over the past few decades.

    IOW, our fiscal problems aren’t caused by too few taxes, but by too much spending. Period.

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  11. Axel Edgren says:

    “The real problem is that vastly greater spending since Oct. 2008, on top of the massive amounts all ready spent over the past few decades.”

    Not a single maligner of the stimulus has been ready to offer a decent alternative. The spending since Oct. 2008 is not a problem, since it isn’t as wasteful spending as what came before.

    “IOW, our fiscal problems aren’t caused by too few taxes, but by too much spending. ”

    That’s like debating whether drowning in a sea is caused by not being long enough or the sea being too deep.

    Anyway, the most important thing to remember is that electing republicans is treason, at least if elementary concern about the deficit is a criterion for being true to the objective interests of the country.

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  12. MichaelW says:

    @Axel: Do you really expect a serious response to that tripe?

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  13. Axel Edgren says:

    Democrats as president has lately coincided with lowering deficits.

    Republicans as president does the opposite.

    Now, I think if you also account for congress and “lag”, you will still see the same effect, roughly. At least you won’t find any evidence that democrats should not be elected, unless you believe zygotes are people or gays are NOT people (but only animals believe that).

    Obama is the exception, as there is not a single human being that has offered an alternative to the bailouts and the stimulus. WW II raised the deficit as well, LOL.

    I think this is because republicans are more religious. Religion is, after all, a veto against critical thinking and adaptation to new circumstances (Christianity was designed to preserve a form of society that belongs in the past), so it’s only natural that a party more embracing of Christianity is going to be lousy at adapting a country to a world where change is the only constant. Nostalgia, fear and sentimentality are all at the core of the Judeo-Christian psyche.

    You still act as if oil will be plentiful and that motor vehicles and cheap gas is a solid bedrock to rest infrastructure, communications and transports on, for example. You still think waterboarding those union commies or denying those young bucks T-bone steaks is going to bring back the glory, or that a bunch of Galtian tycoons are going to usher in a new age.

    tl; dr – don’t elect republicans. But the US voters can do what they want – either do as I say and they will do decently or they can do something else and suffer. I am happy either way.

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  14. Anyway, the most important thing to remember is that electing republicans is treason, at least if elementary concern about the deficit is a criterion for being true to the objective interests of the country.

    *GASP* It’s Zel’s long lost liberal twin!

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  15. Axel Edgren says:

    Well, if you know that your country is going to become more fiscally unsettled and you still go for it, what the hell should I call it?

    It’s not like there is an excuse, or any plausible deniability. If you vote republican, then it is almost certain that you done goofed.

    There is a whole lot of treason going on according to my, non-judicial definition. Basically, in most cases, voting republican is on net more treasonous (worse for the country, objectively) than voting democrat. It’s not rocket surgery and it is not meant to really be much of a call to punish republicans. It’s just an aggregate value judgment.

    One party HAS to be objectively worse than the other – that is very simple to grasp.

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  16. tom p says:

    >>>>Not one dime of the deficit is ’caused’ by not raising taxes.<<>>>Every dime of it is caused by spending more than revenue. That’s the definition of a deficit. <<<<

    And so you put the lie to your own statement. Dodd, you are an idiot. In your world, income is divorced from outgo,

    Sorry, in my world they connect.

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  17. An Interested Party says:

    People who whine about how the deficit is all about spending might seem more in tune with reality if they simply admitted that the only way the deficit will be fixed is through a combination of spending cuts AND tax increases…I realize that this is asking a lot of such people…

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  18. john personna says:

    Not one dime of the deficit is ’caused’ by not raising taxes

    An example of why we’re too frickin’ stupid to fix our budget.

    Math FAIL

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