The Congressional Budget Office (CBO) projects the FY2012 federal ”baseline” federal budget deficit will be $1.1 trillion, almost $220 billion lower than FY2011.  This easing of the federal deficit reflects an expected growth in government revenues, while 2012 expenditures remain essentially unchanged from 2011. 

The CBO report also includes deficit estimates from 2013 through 2022.  These estimates show baseline deficits declining significantly in FY2013 (to $585 billion) and averaging about $275 billion a year through 2022.  But, these much lower deficit estimates may understate what actually happens to the deficit because CBO’s baseline projections assume a continuation of current law for both expenditures and revenue.  For example, CBO’s baseline revenue estimates reflect the expiration of the reduced social security payroll tax rate, which will expire on February 29, 2012 unless, as is likely, Congress acts to extend it.  Also, the baseline projections expect the “Bush tax cuts” to expire in 2013, an event that is highly uncertain at this point.

To account for potential changes to current tax and expenditure laws, CBO also prepared an alternative scenario.  Under this scenario, deficits stay at almost $1 trillion over the next five years.  About two-thirds of the difference between the higher deficit projections in the alternative scenario stem from much lower revenues due to the assumption that all expiring tax provisions are extended. 

Underlying CBO’s baseline deficit projections are economic assumptions that expect the economy to continue its slow recovery.  The Gross Domestic Product (GDP) is projected to grow by one to two percent per year until 2014, after which growth moves to the 4 percent level.  CBO expects the unemployment rate to reflect this slow economic recovery, projecting the rate to average slightly more than the current 8.5 percent until 2015.  The projected rate drops to 7.4 percent in 2015 and levels off at 5.5 percent after 2017 as economic growth gains steam.