WASHINGTON — The Congressional Budget Office estimates the federal deficit for fiscal year 2012, which ends September 30, will be $1.1 trillion, down from the $1.2 trillion estimated in March.
According to the agency's updated Budget and Economic Outlook released on Wednesday, if several policies set to expire in the near future under current law are allowed to proceed, the deficit would be significantly improved, but the overall economy would fall into recession.
Those policies include the total expiration of the Bush-era tax cuts, as well as planned sequestration, both of which are scheduled to begin at the beginning of 2013.
"CBO expects that such fiscal tightening would lead to what will probably be deemed a recession, with growth in GDP declining in 2013 and the unemployment rate staying above 8% through 2014," the report stated.
If an alternative fiscal scenario were to go into effect, in which all Bush-era tax cuts were extended, the planned sequestration did not take place, and the Alternative Minimum Tax was indexed to inflation, deficits over 2013-2022 would average about 5% of GDP, compared to about 1% under current law.
But while the economy would be bolstered in the short run under such an alternative scenario, investment, savings, and ultimately GDP would be hindered in the long run, the CBO report states.
Under the alternative scenario, deficits over the next decade would total $10 trillion, and debt held by the public would reach 90% of GDP by 2022, higher than in any year since the end of World War II.
This marks the fourth year in a row of a federal deficit of more than $1 trillion. At 7.3% of Gross Domestic Product, the report stated this year's deficit will be three-quarters as large as the deficit in 2009 relative to GDP.
Debt held by the public will stand at 73% of GDP at the end of the fiscal year, twice the 36% of GDP it measured at the end of 2007.
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