WASHINGTON — After months of unrelieved gloom and discord, Congress and President Barack Obama are starting to make a dent in the federal budget deficit. It's projected to shrink slightly to $1.28 trillion this year, and bigger savings from this month's debt ceiling deal are forecast over the next decade.
No one's celebrating. There will be plenty of red ink for years to come.
The nonpartisan Congressional Budget Office projected Wednesday that annual 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. The office also forecast persistently high unemployment, a troubling political prospect for President Barack Obama in the crucial months of his campaign to win a second term.First Read: Romney's up-and-down summer
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Even with the anticipated big savings, annual budget deficits are expected to total nearly $3.5 trillion over the next decade — and much more if Bush-era tax cuts scheduled to expire at the end of next year are extended. In all, nearly $8.5 trillion would be added to the national debt over the next 10 years if the tax cuts and certain spending programs are kept in place, the budget office report said.
The national debt now stands at more than $14.6 trillion.
The numbers help illustrate the urgency facing a new joint committee in Congress that is charged with finding $1.2 trillion to $1.5 trillion in budget savings over the next decade. Some lawmakers are calling for an even bigger package, a tall order given the bitter debate that produced this month's debt deal.
"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."
Deficits could be even larger if CBO's economic forecast, which is more optimistic than private projections, proves to be too rosy. The agency doesn't foresee another recession but modest economic growth over the next few years. And it expects the unemployment rate to fall only slightly, to 8.5 percent in the last three months of 2012, and staying above 8 percent through the following year.
"A great deal of the pain of this economic downturn still lies ahead of us," said CBO Director Douglas W. Elmendorf.
Democratic leaders say the report shows the need for programs and policies aimed at creating jobs. Republicans say the report is an indictment of Obama's economic policies.
"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."
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, the agency now projects a 2.8 percent COLA for 2012. That's 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 those of the past two years. The budget year runs through the end of September.
The new deficit projection for this year is $116 billion lower than the one made by CBO in March. Most of the improvement is from higher than anticipated tax collections from 2010 returns filed in the spring, the report said.
The new deficit reduction law accounts for most of the savings over the next decade: $917 billion in spending cuts already identified in the law, and at least $1.2 trillion in savings to be spelled out by the new joint committee. If the committee of six Republicans and six Democrats fails to agree on a package that is passed by Congress, the law would trigger $1.2 trillion in automatic spending cuts, affecting the Pentagon as well as domestic programs.
The budget office also projects $600 billion in savings over the next decade from lower interest rates.
"This CBO report shows that the budget control act signed by the president earlier this month brought down the deficit significantly, but much more work remains to be done," said Meg Reilly, speaking for the Office of Management and Budget. "We need to get back on a sustainable path and invest in long-term economic growth, which is why the president has called on Congress to take immediate action on pending legislation that will help create jobs."
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