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The Federal Deficit
The federal budget deficit is the amount of money the federal government spends minus the amount of money it takes in for a given year. In 2012, this gap between federal revenues and federal spending is projected to equal $1.32 trillion, down from $1.37 trillion in 2010, but still one of the largest deficits since the end of World War II. These deficits have been driven almost entirely by three key factors—tax cuts originally enacted under President George W. Bush and extended under President Barack Obama; the wars in Iraq and Afghanistan and the Global War on Terror; and the lingering effects of the Great Recession of 2007-2009, the worst economic downturn since the Great Depression. If not for these factors, the United States would not be facing this huge deficit this year.
Last summer, an agreement by Congressional leaders and President Obama to raise the federal debt limit led to enactment of the Budget Control Act (BCA). That law will reduce the deficit by nearly $1 trillion in deficit reduction over the next decade by placing binding caps on discretionary spending – the 40 percent of the federal budget that is controlled by the annual appropriations process.
Bush Tax Cuts
Although the tax cuts enacted in 2001 and 2003, and extended in 2010 are a significant factor in the growth of the federal deficit, Congress has so far been unable to reach any agreement on including revenues in any deficit reduction package. However, the tax cuts enacted under Presidents Bush and Obama are set to expire at the end of 2012 which will force Congress to focus on the revenue side of the budget. There is bipartisan agreement that the tax cuts benefitting the middle class should be extended for at least one year but there are a number of areas of disagreement. In July, the Senate and the House passed two very different tax bills that would have very different consequences for North Carolina households.