New budget estimates released Wednesday predict the government's deficit will hit almost $1.5 trillion this year, a new record.
The daunting numbers mean that the government will have to borrow 40 cents for every dollar it spends.
The new Congressional Budget Office estimates will add fuel to a raging debate over cutting spending and looming legislation that's required to allow the government to borrow more money as the national debt nears the $14.3 trillion cap set by law. Republicans controlling the House say there's no way they'll raise the limit without significant cuts in spending, starting with a government funding bill that will advance next month.
The CBO analysis predicts the economy will grow by 3.1 percent this year, but that joblessness will remain above 9 percent this year. Dauntingly for President Obama, the nonpartisan agency estimates a nationwide unemployment rate of 8.2 percent on Election Day in 2012.
The latest figures are up from previous estimates because of bipartisan legislation passed in December that extended Bush-era tax cuts, unemployment benefits for the long-term jobless and provided a 2 percent payroll tax cut this year.
That measure added almost $400 billion to this year's deficit, CBO says.
The deficit is on track to beat the record of $1.4 trillion set in 2009. That figure reflected huge outlays from the Wall St. bailout. The nonpartisan budget agency predicts the deficit will drop to $1.1 trillion next year.
"The fiscal challenge confronting us is enormous. To solve this problem, it will require real compromise and a great deal of political will," said Budget Committee Chairman Kent Conrad, D-N.D. "We need to have both sides, Democrats and Republicans, willing to move off their fixed positions and find common ground."
The chilling figures come the morning after Obama called for a five-year freeze on domestic agency budgets passed by Congress each year. But those nondefense programs make up just 18 percent of the budget, which means any upcoming deficit reduction package will require politically dangerous curbs to popular benefit programs, which include Social Security, Medicare, the Medicaid health care program for the poor and disabled, and food stamps.
Neither Obama nor his GOP rivals on Capitol Hill have yet come forward with specific proposals for cutting benefits programs.
Obama has pointedly steered clear of the recommendations of his deficit commissions, which in December called for politically difficult moves such as increasing the Social Security retirement age and reducing future increases in benefits. It also proposed a 15 cents a gallon increase in the gas tax and eliminating or scaling back tax breaks -- including the child tax credit, mortgage interest deduction and deduction claimed by employers who provide health insurance -- in exchange for rate cuts on corporate and income taxes.
CBO predicts that the deficit will fall to $551 billion by 2015, down to a sustainable 3 percent of the size of the economy.
But under its rules, the CBO assumes that recently-extended cuts in taxes on income, investment and people inheriting large estates will expire in two years. If those tax cuts, and numerous others, are extended, the deficit for that year would be almost three times as large.
Tax revenues, which dropped significantly in 2009 because of the recession, have stabilized. But revenue growth will continue to be constrained because of the slow pace of economic growth and the extension of Bush era tax cuts passed by Congress in December. The CBO projects revenues to be 6 percent higher in 2011 than they were two years ago, which will not keep pace with the growth in spending.
As a share of the economy, tax revenues in 2011 are projected to reach their lowest levels since 1950. The CBO projects that tax revenues will be 14.8 percent of GDP in 2011, which would be 0.1 percentage point lower than in 2009.