Budget Deficit Is Expected to Grow 14% to $1.48 Trillion in Fiscal 2011

By COREY BOLES

WASHINGTON—The federal government's budget deficit is expected to grow about 14% to $1.48 trillion by the end of the current fiscal year, an increase largely resulting from the extension of lower tax rates, the Congressional Budget Office said Wednesday.

The deficit was roughly $1.3 trillion in fiscal 2010, which ended on Sept. 30.

The CBO said two weeks ago that the budget deficit had reached $371 billion through the first three months of fiscal 2011.

In fiscal 2012, which begins on Oct. 1, the CBO expects the deficit to drop to $1.1 trillion, still big by long-term historical standards.

The CBO, an agency that reviews congressional budgets and legislative initiatives with budgetaryimplications, said that as a share of U.S. gross domestic product, the deficit will jump from 8.9% in fiscal 2010 to 9.8% in fiscal 2011 before declining to 7.0% in fiscal 2012.

The tax compromise reached between Democrats and Republicans in December added $858 billion to the federal budget deficit over the next 10 years. The deal renewed the Bush-era income-tax rates for all Americans for two years, despite the misgivings of many Democrats, who wanted to see the rates for wealthiest Americans revert to higher rates.

The accord also reinstated the estate tax at a rate of 35% on individuals earning more than $5 million and couples worth more than $10 million. The tax had expired at the end of 2009 and was set to be renewed from 2011 at higher rates.

The agreement also created a one-year payroll-tax holiday for most working Americans.

While both sides acknowledged that the strands of the tax deal would add to the budget deficit in the short term, lawmakers agreed that allowing taxes to increase would have jeopardized the economic recovery.

via online.wsj.com