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CBO Increases Deficit Estimate

March 16, 2012—The federal budget deficit for FY 2012 is projected to be $1.2 trillion, according to a revised estimate the Congressional Budget Office (CBO) released March 13.  This is $93 billion higher than CBO's projection earlier this year [see Washington Highlights, Feb. 3].

CBO notes, "Although the deficit is starting to shrink, it remains very large by historical standards.  How much and how quickly it declines will depend in part on how well the economy performs over the next few years.  Probably more critical, though, will be the fiscal policy choices made by lawmakers as they face the substantial changes to tax and spending policies that are slated to take effect within the next year under current law.”

CBO attributes nearly all of the increase in the projected deficit to enactment of the Middle Class Tax Relief and Job Creation Act of 2012 (P.L. 112-96), which extended for 10 months (through Dec. 2012) the 2 percentage point cut in the payroll tax rate for Social Security that first went into effect in Jan. 2011.  CBO estimates the extension reduces projected revenues by an estimated $70 billion in 2012 and $23 billion in 2013.

By law, CBO must build its baseline estimates based on changes in tax and spending policies that are contained in current law, but in some cases represent a significant departure from recent policies.  For example, these projections assume much higher revenues and lower outlays than would occur if the lower tax rates that now are in effect were extended and if provisions that limit future spending were eased.  To illustrate the budgetary consequences of maintaining the current tax and spending policies, CBO also has produced projections under an “alternative fiscal scenario,” which assumes:

  • expiring tax provisions (other than the current reduction in the payroll tax rate for Social Security) are extended;

  • the alternative minimum tax (AMT) is indexed for inflation after 2011;

  • Medicare’s payment rates for physicians’ services are held constant at their current level (rather than dropping by an estimated 27 percent in Jan. 2013 and more thereafter, as scheduled under current law); and

  • the automatic spending reductions mandated by the Budget Control Act (P.L. 112-25), which are set to take effect in Jan. 2013, do not occur (although the original caps on discretionary appropriations in that law are assumed to remain in place).

Under the alternative fiscal scenario, deficits for 2013–2022 would total $10.7 trillion over that period instead of the $2.9 trillion reflected in CBO’s baseline projections. 


Dave Moore
Senior Director, Government Relations
Telephone: 202-828-0559


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