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$1.1 trillion federal deficit predicted in report

By Catholic Online (NEWS CONSORTIUM)
August 23rd, 2012
Catholic Online (www.catholic.org)

The projection is a bit down from an earlier estimate of $1.2 trillion - but there's now getting around the fact that the federal shortfall will be over one trillion dollars for the fourth straight year. The nonpartisan Congressional Budget Office projected this week that the deficit for 2012 will run $1.1 trillion. And they're warning that a new recession is highly likely.

LOS ANGELES, CA (Catholic Online) - An ongoing stalemate over tax and spending cuts is ongoing between Democrats and Republicans, fueling fears of yet another 2008.

The budget office said in its annual summertime report that allowing a decade-old tax Bush tax rates expire coupled with sweeping spending cuts in January, which will happen without congressional action "would lead to economic conditions in 2013 that will probably be considered a recession."

In the event of this occurring, the economy would contract by 0.5 percent, a far grimmer projection than previously predicted by the budget. Analysts say that joblessness would rise to around nine percent by late next year if the standoff persists.

This latest warning arrives during a presidential and congressional election year. Neither U.S. President Obama nor congressional Republicans have shown any signs of leeway in their ongoing battle over taxes, spending and the budget. The sluggish economy and massive federal deficits are top-flight issues in this year's campaigns.

Obama wants to renew expiring tax cuts for everyone except individuals earning over $200,000 and couples who bring in above $250,000 while Republicans are demanding that all tax cuts be extended. Both sides have made no progress over how to prevent budget-wide spending cuts from taking effect. These automatic cuts were set in motion by the failure of lawmakers to reach a bipartisan debt-reduction agreement in 2011.

Allowing the tax rates continue and well as preventing the spending cuts from taking effect would leave a deficit next year of over $1 trillion. If the reverse occurs, the shortfall would be $641 billion, detracting roughly $400 billion out of an economy that is already struggling.

Though continuing the tax rates and blocking the spending cuts would produce higher economic growth over the next two years, "it would reduce output and income in the longer run and is ultimately unsustainable," the budget office warned.

The report also sees an economy recovering at only a modest pace the rest of this year, growing at an annual rate of 2.25 percent.

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