By STEPHEN OHLEMACHER, Associated Press
WASHINGTON (AP) - The federal budget deficit will hit $1.28 trillion this year, down slightly from the previous two years, with even bigger savings to come over the next decade, according to congressional projections released Wednesday.
The nonpartisan Congressional Budget Office says budget deficits will be reduced by a total of $3.3 trillion over the next decade, largely because of the deficit reduction package passed by Congress earlier this month.
Nevertheless, the federal budget will be awash in red ink for years to come. Even with the savings, budget deficits will total nearly $3.5 trillion over the next decade - more if Bush-era tax cuts scheduled to expire at the end of 2012 are extended.
There is more bad news in the report: CBO projects only modest economic growth over the next few years, with the unemployment rate falling only slightly by the end of 2012. The agency projects an unemployment rate of 8.5 percent for the last three months of 2012. The presidential election is in November of that year.
"The United States is facing profound budgetary and economic challenges," the new CBO report says. "With modest economic growth anticipated for the next few years, CBO expects employment to expand slowly."
There is good news for the more than 50 million people who get Social Security benefits. After two years without a cost-of-living adjustment, CBO now projects a 2.8 percent COLA for 2012, up from the 1.1 percent increase the agency previously projected. The actual increase for 2012 will be announced in October. It is based on a measure of inflation.
At $1.28 trillion, this year's budget deficit would be the third highest, surpassed only by the deficits registered in the past two years. The budget year runs through the end of September. Through July, the deficit totaled $1.1 trillion, the Treasury Department said.
The new deficit projection for this year is $116 billion lower than the one made by CBO in March. Most of the change is from higher than anticipated tax collections from 2010 returns filed in the spring, the report said.
"A slight decrease in the projected deficit is nothing to celebrate, particularly when it is accompanied by the grim news that CBO expects the national unemployment rate to continue to exceed 8 percent well past next year," said House Speaker John Boehner, R-Ohio. "The president's policies were supposed to keep that from happening. Instead they've added trillions to our debt at the expense of our children and helped put our nation's credit rating in jeopardy. Where are the jobs?"
Congress passed a deficit reduction package earlier this month that cuts spending by $917 billion over the next decade for Cabinet-level agencies and the thousands of federal programs they administer. The legislation also created a new joint, bipartisan committee in Congress charged with coming up with $1.2 trillion to $1.5 trillion in additional savings by late November.
If the committee of six Democrats and six Republicans agrees on a package, Congress must vote on it by late December. Failure to pass a package would trigger $1.2 trillion in automatic spending cuts, affecting the Pentagon as well as domestic programs.
The new CBO report projects that the legislation will reduce deficits by a total of $2.1 trillion over the next decade. The agency also projects savings of $600 billion over the next decade from lower interest rates. Much of the rest of the savings came from technical updates to CBO's revenue and spending forecasts, the report said.
The agency, however, warns that spending cuts and caps in the deficit reduction package will limit the government's ability to provide support for the economy, "and thereby restrain economic growth over the next few years."
"CBO's report is yet more evidence that Congress faces a twin challenge of a sluggish near-term economy and a still very serious long-term debt threat," said Sen. Kent Conrad, D-N.D., chairman of the Senate Budget Committee. "Congress cannot afford to ignore either challenge."
Conrad said CBO's projections illustrate the need for the new joint committee to reduce the deficit by much more than $1.5 trillion. Conrad called for a deficit reduction package of at least $4 trillion over the next decade, a target that many economists say is necessary for the government to get its finances in order.
Rep. Chris Van Hollen of Maryland, ranking Democrat on the House Budget Committee, said, "The CBO outlook underscores the need for the joint committee to propose a plan to help put America back to work, coupled with a blueprint to reduce the long term deficit."
(Copyright 2011 by The Associated Press. All Rights Reserved.)