The Congressional Budget Office today released its latest budget projections, which show that the deficit in 2012 is expected to exceed $1 trillion and that economic growth is likely to slow over the next two years. Predictably, Republicans jumped to blame the large deficit on President Obama’s spending.
“The President and his party’s leaders have fallen short in their duty to tackle our generation’s most pressing fiscal and economic challenges,” claimed House Budget Committee Chairman Paul Ryan (R-WI). “By contrast, the new House Majority has fought to put the brakes on the President’s spending spree.”
However, as Center for American Progress Director of Tax and Budget Policy Michael Linden noted, CBO was projecting a surplus for 2012 as recently as 2007, and plummeting federal revenue — not the GOP’s imaginary “spending spree” — is responsible for the lion’s share of the swing from surplus to deficit:
Most of that swing from surplus to deficit was the result of the Great Recession’s onset. Between September of 2008 and January of 2009 alone, economic conditions prompted the CBO to revise estimates of 2012 revenue collections downward by over $240 billion. [...]
The remainder of the deterioration did happen after 2009, but higher spending wasn’t even close to the main culprit. The real problem was lower-than-expected revenues.
In January 2009, the CBO forecast 2012 revenues at $3.1 trillion. Today, the CBO expects that this year’s revenue will be just $2.5 trillion, a nearly $600 billion difference. That revenue decline accounts for fully 48 percent of the swing from projected surplus to current deficit.
And while some of that decline has to do with continued economic weakness, the majority of it, about $335 billion, is the direct result of the tax cut deal signed into law in December 2010. That deal, which extended all of the Bush tax cuts, even those that exclusively benefit the very wealthy, is the legislative factor by far most responsible for this year’s deficit.
It was Republicans who insisted that the Bush tax cuts be extended for everyone in 2010, even during a time of record deficits. Not only is revenue the main factor behind today’s deficit, but it’s also the driver behind projected deficits:
As we’ve noted, a do-nothing Congress could virtually eliminate the deficit by simply not extending a slew of expiring tax breaks at the end of the year.