Budget analysts are predicting the U.S. budget deficit will reach $1.1 trillion for 2012 but that figure is actually slightly less than expected, reports Bloomberg News.
The nonpartisan Congressional Budget Office's biannual report said that the shortfall will be about $100 billion less than it had predicted earlier this year.
Tax revenues are up 6 percent and spending is down almost 1 percent causing the budget deficit to shrink from 2011's figure of $1.3 trillion.
The CBO report warns that the ongoing political stalemate over spending cuts and tax hikes "would lead to economic conditions in 2013 that will probably be considered a recession," according to Fox News.
If the Bush-era tax cuts do not expire and a package of automatic deep spending cuts is launched in January - which will happen if Democrats and Republicans do not agree on where to cut spending - the economy would contract by 0.5 percent, according to AP.
Analysts also predict unemployment would rise to around 9 percent by late next year if there is no congressional agreement.
The two sides of the political aisle have very different ideas about how to fix the budget deficit. AP reports that President Obama wants to renew expiring tax cuts for everyone except individuals earning over $200,000 and couples who bring in above $250,000.
Republicans insist on tax cuts being extended for people in all income brackets, including the wealthy. Democrats and Republicans have also completely stalled on progress to prevent catostrpohic budget cuts from taking effect in January. The cuts would be an automatic reaction to congress' failure to agree on ways to reduce the federal debt.