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Trillion-dollar deficits seen for years to come

CBO also projects sluggish economy

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The government will run another $1.3 trillion deficit in fiscal 2011, Congress' chief scorekeeper said Wednesday in a report that highlighted both an economy that will struggle over the next few years and a federal budget showing massive red ink for the foreseeable future.

The deficit marks the third-largest shortfall in history, and the third straight $1 trillion gap under President Obama, though next year's deficit is projected to dip just under that mark, according to the Congressional Budget Office.

Over the next decade, the federal government could rack up nearly $6 trillion more in deficits, CBO said — far outstripping the $1.5 trillion in savings the new deficit supercommittee is charged with recommending to Congress.

Still, the annual summertime budget update showed the progress Congress has achieved already since January: the projected deficit is $200 billion lower this year, and the long-term debt trend could be downward over the next decade. However, that prediction would hold only if Congress allows popular tax cuts to expire and lets spending cuts go into effect as the law requires.

The unemployment rate, though, is projected to remain higher than average for years and at 8.5 percent in the final quarter of 2012, just as Mr. Obama and Congress go back to face voters.

"A great deal of the pain of this economic downturn still lies ahead of us," CBO Director Douglas W. Elmendorf said.

Going forward, there are more questions than answers about taxes and spending policy, and many of those decisions are deferred to the 12-member deficit committee that Congress created this month.

Members of the committee said they see their work cut out for them.

"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," said Rep. Chris Van Hollen of Maryland, the ranking Democrat on the House Budget Committee and one of six Democrats on the supercommittee.

Mr. Van Hollen said that deal must include tax increases and that the revenue should be used to lower deficits. Republicans oppose tax increases and prefer instead to streamline tax rates and hope better economic growth means more revenue.

But growth appears to be iffy. In blunt language, the CBO said the economy "remains in a severe slump" and projected its effects will continue to be felt throughout the next decade.

If tax increases and spending cuts go into effect, as called for under current law, 2013 could be a particularly nasty year. But Mr. Elmendorf said pain now could help head off still-worse effects in the long run.

Republicans, who fought this year for still-deeper cuts, saw little to celebrate in the projections.

"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 A. Boehner, Ohio Republican.

"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," he said.

The White House said the deep deficit is the result of the economic hole Mr. Obama found when he took office, but that with the economy still slumping, more stimulus will be needed.

Mr. Obama is planning a speech in September to lay out tax cuts and spending initiatives he says can boost the economy, even as he calls on lawmakers to cut other spending and raise other taxes.

"There is a lot more that we have to do," spokesman Josh Earnest told reporters covering the president, who is vacationing in New England. "That's why one of the things that the president's going to talk about next month, in addition to some of these new ideas about creating jobs, is actually a suggestion, some ideas for how the supercommittee can go beyond their $1.5 trillion deficit reduction mandate to actually do even more to address the longer-term fiscal challenges that are facing the country."

This year's deficit numbers were helped by higher-than-expected income tax revenue. In 2011, revenue will reach $2.3 trillion, while spending, measured by outlays, will be $3.6 trillion.

CBO's report contains a number of other judgments on the economy, government programs and Congress' actions this year:

• In the out years, Social Security costs have ticked up slightly, while Medicare and other health care spending will dip.

• Despite claims of larger savings, the one-year spending deal Congress reached in April to avert a government shutdown did not have a large effect on 2011 spending. The largest change, CBO said, came from lower defense spending because the deal was reached halfway through the fiscal year, which pushed some purchases into next year.

• The Democratic health care initiative will amount to a small but noticeable increase in taxes paid to the government over the next decade, and amount to about one-tenth of 1 percent of gross domestic product.

In a separate report, CBO updated its analysis of the president's 2009 stimulus package, finding that it was responsible for sustaining between 1.3 million and 3.3 million jobs in 2010 — making it fall somewhere between somewhat and dramatically short of the White House's projection that it would create 3.5 million jobs.

Meanwhile, the stimulus price tag ticked down slightly, to $825 billion, which is $6 billion less than the last estimate in May, though still well above the $787 billion CBO initially said it would cost initially.

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