WASHINGTON -- The federal budget deficit will hit $1.28 trillion this year, congressional budgeters reported Wednesday, down slightly from the previous two years but enough to set off new warnings about a sluggish economy and major long-term debt.
The Congressional Budget Office predicts budget deficits will be around $3.5 trillion over the next decade, a reduction of $3.3 trillion that was in an earlier estimate attributable to the deficit reduction package passed by Congress earlier this month. But in its 10-year plan, never do deficits drop below $205 billion in a fiscal year.
By the end of 2021, debt held by the public will equal 61 percent of GDP, it added.
The nonpartisan budget office also says any expectation of a steep decline in unemployment is unlikely. Slight growth -- 2.3 percent in fiscal year 2011 and 2.7 percent in 2012 -- will be accompanied by a projected 8.5 percent unemployment rate in the last four months of 2012.
That's down from the current 9.1 percent. The presidential election is in November of that year.
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"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."
The news did not send shock waves of encouragement through the halls of Washington.
"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.
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. This year's deficit projection is $116 billion lower than the one made by CBO in March. Most of the change is from higher than anticipated tax collections.
CBO bases its numbers on existing legislation so anything could change. Director Doug Elmendorf told reporters on Wednesday that projections could be much worse if current tax and payment policies -- including the Bush-era rates, the alternative minimum tax, the payroll tax holiday and the "doctor fix" on Medicare payments -- are extended and all else stays equal.
In that scenario, Elmendorf said the deficit will increase from a projected $3.5 trillion over the next decade to $8.5 trillion. Alternatively, he said, if the rates expire, deficits will drop in the the next two years by 6.2 percent and 3.2 percent, respectively.
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 at least $1.2 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.
Boehner noted that the CBO report credited two-thirds of the limited improvement in the fiscal outlook to enactment of the debt reduction deal. But Sen. Kent Conrad, D-N.D., chairman of the Senate Budget Committee, said the report is "proof positive" that the super committee better come up with a multi-pronged plan.
"First, it must take on the immediate urgency of putting people back to work now so that the economy strengthens," Conrad said. "And secondly, this special committee should seek to develop a grand bargain on deficit reduction that is comprehensive, balanced and goes beyond the group's $1.5 trillion mission."
Rep. Chris Van Hollen, D-Md., a member of the super committee, was more specific, saying he wants to "develop a plan focused on boosting economic growth now and cutting the long term deficit in a balanced way that addresses both the expenditure and revenue side of the budget equation."