OMB Projects $1.32 Trillion Deficit in FY'’11

The Office of Management and Budget reported Thursday that the federal deficit is expected to be $1.32 trillion in fiscal 2011, down $329 billion from its February estimate, while it projected the unemployment rate could be 9.0% by the end of 2012, based on its mid-session review of President Obama’s fiscal 2012 budget.

The deficit was revised lower by a combination of stronger tax receipts and lower spending, the OMB said. The new estimate takes into account the $1.5 trillion in savings over 10 years required by the Budget Control Act, passed to raise the debt ceiling in August.

The OMB said the Obama administration this month will release recommendations for proposals to be considered by the committee.

The deficit is expected to equal 8.8% of gross domestic product in fiscal 2011 and drop to 6.1% in fiscal 2012. The February estimate forecast a deficit-to-GDP ratio of 10.9% and 7.0% for fiscal 2011 and 2012 respectively.

On the economy, the OMB issued two forecasts: one that is more pessimistic and in line with private forecasters and the other which is consistent with the mid-session review estimate. Real GDP growth could be as low as 1.6% in 2011 and 2.9% in 2012, congruent with the “Blue Chip” expectations. The Federal Reserve is projecting a GDP range of 2.7% to 2.9% for 2011 and 3.3% to 3.7% for 2012.

The OMB estimated the unemployment rate could be 9.1% in 2011 and 9.0% in 2012.

The forecast noted that cost-cutting efforts by state and local governments to balance their budgets have added a drag to the economic recovery. It added that state and local governments have cut 340,000 jobs in the last year.

Still, administration officials remained confident the economy will avoid another recession.

“We are not forecasting a double-dip recession,” Katharine Abraham, a member of the president’s Council of Economic Advisors, said on a conference call with reporters Thursday. The administration is still forecasting “sustained and steady growth,” she said, but “the pace of growth is not what we’re going to be happy with.”

The Congressional Budget Office reported last week that the federal deficit is estimated to be $1.28 trillion in 2011. The CBO also said it expects the United States to dodge another recession in the second half of 2011.

The OMB update includes the extension of the Build America Bond program that the president proposed in February, though the political reality — widely acknowledged by BAB supporters in Congress — is that the program cannot overcome Republican objections to be extended.

Obama in February proposed to make BABs permanent at a 28% subsidy rate, which the administration estimated would be revenue-neutral.

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Washington
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