The U.S. budget deficit will reach $1.1 trillion this year, slightly less than anticipated, according to a report.
The nonpartisan Congressional Budget Office said today in a biannual analysis that the shortfall will be about $100 billion narrower than it had projected in March. The deficit would be less than last year’s $1.3 trillion, in part because tax revenue has risen by almost 6 percent and spending is down by about 1 percent this year.
It would be the fourth consecutive year the U.S. would run a trillion-dollar budget deficit.
The report, coming less than three months before the Nov. 6 election, may influence debate between Republicans and Democrats over fiscal policy. The two parties have offered different plans for taxing and spending, with Republicans calling for spending cuts and no tax increases, and President Barack Obama proposing higher taxes for top earners.
The budget office forecasts U.S. debt will total 73 percent of the nation’s gross domestic product this year. That would be the highest level since 1950 and about twice as large as five years ago, before the most recent recession, CBO said.
The economic recovery will continue at “modest” pace, the budget office said, with real GDP growth growing at an annual rate of 2.25 percent in the second half of this year. The jobless rate will continue to exceed 8 percent while inflation will remain low, the report said.
The budget outlook for 2013 and beyond will depend on what lawmakers do about tax-and-spending decisions known as the fiscal cliff. Tax cuts first enacted under President George W. Bush will expire at the end of this year, while more than $1 trillion in automatic spending cuts will start taking effect in January.
Next year’s deficit would shrink to $641 billion if lawmakers decide to allow the tax increases and spending cuts to go into effect, CBO projects. The combination of scheduled spending cuts and tax increases would probably push the economy into recession if Congress doesn’t act, according to the CBO.
“Whether lawmakers allow scheduled policy changes to take effect or alter them will play a crucial role in determining the path of the federal budget over the next decade and the outlook for the economy,” according to the report.