U.S. Budget Deficit To Reach $1.1 Trillion

The U.S. economy will probably tip into recession next year if lawmakers can’t break an impasse over the federal budget, according to a report.

The nonpartisan Congressional Budget Office said today that scheduled tax increases and spending cuts in 2013 would reverse the modest economic recovery. Economic output would shrink next year by 0.5 percent, joblessness would climb to about 9 percent with “economic conditions in 2013 that will probably be considered a recession,” the agency said in a biannual report on the budget and economic outlook.

Senate Majority Leader Sen. Harry Reid , center, with Senate Majority Whip U.S. Sen. Richard Durbin and Sen. Patty Murray during a news conference on a middle class tax cut bill.

Aug. 21 (Bloomberg) -- Niall Ferguson, a history professor at Harvard University and a Bloomberg Television contributing editor, discusses his Newsweek magazine cover story about President Barack Obama's performance. Ferguson, speaking with Erik Schatzker and Sara Eisen on Bloomberg Television's "Market Makers," also talks about the potential impact of a Mitt Romney presidential victory on the economy. 

Aug. 21 (Bloomberg) -- Peter Orszag, vice chairman of global banking at Citigroup Inc. and a former director of the Office of Management and Budget, talks about Medicare costs and Republican vice presidential hopeful Paul Ryan's budget plan. Orszag speaks with Tom Keene and Sara Eisen on Bloomberg Television's Surveillance." (Orszag is a Bloomberg View columnist. The opinions expressed are his own. Source: Bloomberg)

“Whether lawmakers allow scheduled policy changes to take effect or alter them will play a crucial role in determining the path of the federal budget over the next decade and the outlook for the economy,” according to the report.

Congressional leaders have said they probably won’t consider until after the election the Bush-era tax cuts set to expire Dec. 31 or $1 trillion in automatic spending cuts that would begin taking effect in January. There is no sign of an agreement to avoid a so-called fiscal cliff, and the CBO report prompted partisan finger-pointing.

The deficit will reach $1.1 trillion this year, about $100 billion less than CBO had projected in March, according to the report. That would be down from last year’s $1.3 trillion, in part because tax revenue has risen by almost 6 percent and spending is down by about 1 percent this year.

Bloomberg