WASHINGTON (AP) -- The United States has now spent $1 trillion more than it's taken in for four straight years.
The
Treasury Department confirmed Friday what was widely expected: The
deficit for the just-ended 2012 budget year - the gap between the
government's tax revenue and its spending - totaled $1.1 trillion.
It wasn't quite as ugly as last year.
Thanks
to a slightly healthier economy, revenue rose 6.4 percent from 2011.
And government spending fell 1.7 percent to $3.5 trillion. That
reflected, in part, less defense spending as U.S. military involvement
in Iraq was winding down and less spending on Medicaid.
As a result, the deficit shrank 16 percent, or $207 billion.
A
stronger economy meant more people had jobs and income that generated
tax revenue. Corporations also contributed more to federal revenue than
in 2011.
Barack Obama's presidency has now
coincided with four straight $1 trillion-plus annual budget deficits -
the first in history and an issue in an election campaign that ends in 3
1/2 weeks.
When Obama took office in January
2009, the Congressional Budget Office forecast that the deficit that
year would total $1.2 trillion. It ended up at a record $1.41 trillion.
The increase was due, in part, to higher government spending to fight
the worst recession since the Great Depression. Tax cuts enacted under
President George W. Bush and wars in Iraq and Afghanistan contributed to
the deficits.
Here's a closer look at the facts surrounding the nation's pile of debt:
- ROOTS OF THE PROBLEM
The
2012 budget gap signals a slight recovery from the deficit explosion
that hit in late 2008. That's when the financial crisis erupted and the
recession that began in December 2007 was tightening its grip.
The
sinking U.S. economy caused tax revenue to plummet. And federal
spending surged. The money went to provide laid-off workers with
unemployment insurance and food stamps. The government also spent more
to provide economic stimulus programs and to stabilize the financial
system.
efore it escalated, the deficit had
been as low as $161 billion in 2007. By 2009, it had peaked at $1.4
trillion. Since then, the improvement has been slight but steady. Tax
revenue is still less than in 2007.
- THE OUTLOOK
The aging of the vast baby boom generation is raising government spending on Social Security and on Medicare and Medicaid.
A
still-weak economy, along with tax cuts, have meanwhile reduced
government revenue. Over the past three years, revenue has fallen below
16 percent of gross domestic product - the value of all goods and
services produced in the United States. It's the lowest such percentage
since 1950. That isn't enough to sustain spending, which has been
exceeding 22 percent of GDP.
And so the
government has borrowed to make up the gap. And debt piles up, year
after year. It's reached $11.3 trillion - $16.2 trillion if you include
money the government has borrowed from itself, mostly revenue from
Social Security.
Unless something changes, the
Congressional Budget Office warns, the federal debt would reach a level
that is "unsustainable from both a budgetary and an economic
perspective."
For the current 2013 budget, the administration predicts a deficit of $991 billion.
Many
private forecasters are less optimistic. Analysts at JPMorgan foresee a
$1 trillion deficit for 2013. That would mark a fifth straight year of
deficits of at least $1 trillion.
All that
assumes the country avoids tax increases and deep spending cuts that
take effect next year unless Congress reaches a budget deal.
-THE THREAT
Over
time, big government debts can damage the economy. The economists
Kenneth Rogoff of Harvard University and Carmen Reinhart of the Peterson
Institute for International Economics have found that economic growth
slows sharply when national government debt reaches 90 percent of GDP.
At
that point, the government is borrowing so much that it "crowds out"
financing for private businesses.
Rising debt levels also raise the
danger that investors will refuse to finance government debt by buying
Treasury bonds - unless they receive substantially higher interest
rates.
Higher rates would then worsen things
for the government by raising its borrowing costs and slowing the
economy. If the economy slows or shrinks, the government collects less
in taxes and spends more on unemployment benefits and other social
programs.
That creates a vicious cycle like
the one that has entrapped European countries such as Spain, Italy and
Greece; Rates are rising, economies buckling, budget deficits widening
and debts swelling. So far, that hasn't happened to the United States.
Investors,
worried about the troubles in Europe, have been eager to buy Treasury
debt, allowing the federal government to borrow at historically low
rates.
- THE FIX:
If
he's elected to a second term, Obama has pledged to reduce the
government's deficits over the next 10 years by about $4 trillion. Obama
says he would reduce the growth of federal spending - slowly, to avoid
triggering another recession. He also wants to end the Bush-era tax cuts
on income that exceeds $200,000 people for single taxpayers and
$250,000 for couples.
Republican challenger
Mitt Romney says he would also reduce spending growth by capping it at
20 percent of the economy by 2016. In 2012, spending has accounted for
about 23 percent of the economy. Romney would preserve the Bush-era
income tax cuts for all taxpayers, regardless of how much they earn. The
economy is too weak to raise taxes on anyone, Romney has argued.
He
says his plan to cut income tax rates for everyone by an additional 20
percent would help produce more tax revenue. And he says he would reduce
the deficit in part by curbing some tax loopholes and deductions.
Complicating
the political options is a crisis that Congress must first resolve: A
budget deadlock could send the economy over a "fiscal cliff" next year,
when tax increases and deep spending cuts will take effect unless a
budget deal is reached.
After the elections, Congress may address the budget crisis during a lame-duck session.
