The report from the nonpartisan budget office underscores the high stakes for a special 12-member Congressional committee created to figure out by December how to achieve up to $1.5 trillion of the $2.4 trillion in maximum 10-year savings promised by the deal.
It comes as Mr. Obama and Democrats, like many economists, are calling for a mix of larger long-term deficit reduction measures with immediate additional job creation measures. While the latter would add to deficits in the short term, proponents argue that they would prevent another recession and avoid the associated costs in lost revenues and safety-net spending. But Republicans oppose any stimulus measures or long-term increases in tax revenues.
The budget office, in its annual summer snapshot of the nation’s fiscal health, projected annual deficits from the 2012 fiscal year, which begins Oct. 1, through 2021 totaling $3.5 trillion. That is just over half of the $6.7 trillion shortfall it forecast in March.
About two-thirds of the difference reflected projected savings from the bipartisan deficit deal; the rest was due to technical and economic revisions. The lower deficits would leave the nation’s accumulated public debt at $14.5 trillion in 2021, or 61 percent of the gross domestic product — a level that many economists consider the maximum level of debt that is sustainable in a growing economy.
But such projections “understate the budgetary challenges facing the federal government in the coming years,” Douglas Elmendorf, director of the budget office, wrote on its Web site.
Annual deficits would be $5 trillion higher for the decade, or a total of $8.5 trillion, assuming the White House and Congress continue several policies as in years past — keeping the lower income-tax rates of 2001 and 2003, which already were extended by two years last December; adjusting the alternative minimum tax annually so it does not hit middle-class taxpayers, and blocking a mandated cut in Medicare payments to doctors. The result would be deficits averaging 4.3 percent of gross domestic product instead of 1.8 percent, the budget office said; economists generally say annual deficits should not exceed 3 percent of gross domestic product.
The higher deficits would bring total public debt through 2021 to 82 percent of gross domestic product rather than 61 percent, higher than in any year since 1948 when debt peaked after World War II.
Mr. Obama and Congressional Democrats have called for ending after 2012 the Bush-era rates on annual taxable income above $250,000 for couples and $200,000 for individuals. That would save about $1 trillion over the decade, including interest. But they want to extend a one-year payroll tax cut, some business tax cuts and emergency unemployment aid.
The budget office as expected said the deficit for the current fiscal year, which ends Sept. 30, would be $1.3 trillion.
At 8.5 percent of gross domestic product, it will be the third consecutive deficit exceeding $1 trillion; as a percentage of the economy, the three deficits spanning the end of the George W. Bush administration and the Obama administration are the largest of the past 65 years.
That “stems in part from the long shadow cast on the U.S. economy by the financial crisis and the recent recession,” Mr. Elmendorf wrote. “Although economic output began to expand again two years ago, the pace of the recovery has been slow, and the economy remains in a severe slump.”
The current deficit could be the peak, but only for the short term. The budget office repeated a longstanding warning: While annual shortfalls will decline through the decade — presuming the economy recovers — deficits will climb after 2021 to unsupportable levels as the aging population and rising health care costs drive up spending for Medicare and Medicaid.
Each party seized on the latest report to buttress its position, evidence of the partisan divide facing the special House and Senate budget committee.
“The C.B.O. outlook underscores the need for the joint committee to propose a plan to help put America back to work, coupled with a blueprint to reduce the long-term deficit,” said Representative Chris Van Hollen of Maryland, a Democratic member of the panel.
Representative Eric Cantor, Republican of Virginia and the House majority leader, said, “Despite a nearly trillion dollar so-called stimulus program, this administration’s policies have resulted in anemic growth, record unemployment and underemployment, and millions of Americans remain out of work.” All the Democrats offer, he added, “is lofty rhetoric, tax hikes and more of the same stimulus spending.”
Article source: http://feeds.nytimes.com/click.phdo?i=1f1ef0054a34a539efc740ae4671cde7
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