By Erik Wasson - 03/13/12 06:50 PM EDT
The nonpartisan Congressional Budget Office said Tuesday that the deficit for 2012 is $93 billion larger than last estimated in January.
The deficit is estimated to reach $1.2 trillion this year, now that CBO has factored in new policies such as the extension of the payroll tax holiday.
In January, CBO assumed the 2-percentage-point payroll tax break expired Feb. 29. After a bruising battle between the House GOP and the White House, the payroll tax break was extended to the end of this year without being offset by spending cuts.
CBO said the improvement is minor.
“The fundamental story about the federal budget has not changed: Although the deficit is starting to shrink, it remains very large by historical standards,” CBO said.
The CBO data released Tuesday will be used by the office to re-estimate the effects of President Obama’s 2013 budget plan. The office uses a different baseline for scoring budgets than the White House.
CBO assumes that all current policies continue or expire exactly as specified in current law. As such, it assumes that the Bush era tax rates on the middle class and the wealthy all expire at the end of 2012, something Congress is unlikely to allow.
Because of the reliance on current law, CBO’s budget outlook tends to be rosier than reality.
By doing nothing, CBO estimates that $2.9 trillion will be added in deficits over the next 10 years. It expects the deficit to shrink to $612 billion next year as higher taxes and the automatic cuts triggered by the failure of the debt supercommittee kick in.
CBO’s forecasts now will be used by House Budget Committee Chairman Paul Ryan (R-Wis.) to write his own 2013 budget. The budget appears to be on track for a March 20 release.