Ahead of the Bell: Budget Deficit

Associated Press

WASHINGTON (AP) — The Federal budget deficit is headed above $1 trillion for a fourth consecutive year, a development that has prompted a lot of debate in Washington but not much action.

The government was expected to add another $60 billion to the deficit for June, according to a projection by the Congressional Budget Office. The Treasury Department will release the actual figure at 2 p.m. Eastern time Thursday.

CBO projects that the deficit through the first nine months of the current budget year will total $905 billion, an improvement of $66 billion over the same period in 2011. CBO is forecasting that the deficit for the entire budget year, which ends Sept. 30, will total $1.17 trillion.

That would be a slight improvement for the $1.3 trillion deficit recorded in fiscal 2011, but it would still mark the fourth year that the deficits have been above $1 trillion.

CBO is forecasting that government receipts through June will be 5.2 percent higher than a year ago. A better job market and modest economic growth have led to higher tax revenue. CBO projects that government spending will be up by about 1 percent for the same period.

The faster growth in revenues compared to spending translates into the slight improvement in the deficit. But that small improvement has not cooled the budget debate in Washington. President Barack Obama and Republicans remain at odds over how much to spend, where to cut and whether tax increases should be on the table.

Obama submitted a budget to Congress in February that called for $4 trillion in deficit reduction over the next decade through a combination of spending cuts and tax hikes on the wealthy. Obama's plan would let Bush-era tax cuts expire for couples making more than $250,000. Obama would also set a 30 percent tax rate on taxpayers making more than $1 million.

Republicans have rejected the tax increases and want deeper cuts in government programs. The GOP-controlled House has approved a budget that calls for deep cuts in Medicare and other programs and a new round of tax cuts that would favor wealthy Americans.

The House-approved spending plan has no chance of passing in the Senate, where Democrats hold a slim majority. That sets the stage for gridlock until after the November elections when lawmakers will be faced with a number of end-of-the-year deadlines.

Mitt Romney, the Republican presidential nominee, has proposed broad but largely unspecified spending cuts. Among the few details, Romney wants to reduce the federal workforce by 10 percent. Romney would keep the Bush-era tax cuts for all incomes, not just families making less than $250,000 as Obama proposes.

Romney is also proposing dropping all tax rates by 20 percent. He would curtail deductions, credits and exemptions for the wealthiest to pay for the lower rates, but he does not specify what tax breaks would be trimmed.

Tax cuts approved during President George W. Bush's administration are scheduled to expire at the end of December. In addition, a set of automatic spending cuts totaling about $1.2 trillion over 10 years are scheduled to kick in. Both parties oppose the automatic spending reductions because they include deep cuts in defense.

However, they have been unable to reach an agreement so far on alternate spending cuts or tax increases that would keep the automatic cuts from taking effect.