CBO Projects $1.1 Trillion Budget Deficit for 2012 if Laws Don’t Change

Under this scenario, policies are assumed to continue in effect even though, by law, they are scheduled to change. Democrats and Republicans have been warring over issues such as expiring tax provisions, Medicare payment rates and automatic spending reductions.

"Under that alternative fiscal scenario, far larger deficits and much greater debt would result than are shown in CBO's baseline," Elmendorf wrote. "Deficits would average 5.4% of GDP over the 2013–2022 period, rather than the 1.5% reflected in CBO's baseline projections. Debt held by the public would climb to 94% of GDP in 2022, the highest figure since just after World War II."

Looking at the nation's current baseline tax picture, the CBO's projection shows that much of the decline in the deficit would occur because tax revenues are projected to shoot up by almost $800 billion, or more than 30%, between 2012 and 2014, from 16.3% of GDP in 2012 to 20% in 2014. That increase is mostly the result of expirations of tax provisions that lower income tax rates and that limit the number of people subject to the alternative minimum tax.

As for spending, the CBO foresees outlays declining modestly relative to GDP due to an expanding economy and statutory caps on discretionary appropriations. However, the aging of the population and rising costs for health care will increase in U.S. spending in later years if laws remain unchanged.

Read Raising Age for Social Security, Medicare Would Cut Both Ways: CBO at AdvisorOne.com