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. That sounds good on the surface, but that's not the whole story -- there's some bad news, too, including sustained unemployment levels above 8 percent.
First, the good news.
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 forecasts persistently high unemployment, a troubling political prospect for President Barack Obama in the crucial months of his campaign to win a second term.
Now, the bad news.
Even with the anticipated big savings, annual budget deficits are expected to total nearly $3.5 trillion over the next decade. That number, however, could increase to nearly $8.5 trillion over the next 10 years if tax cuts (that are set to expire at the end of this year) and certain spending programs are kept in place, the budget office report said.
The national debt now stands at more than $14.6 trillion. And things could be worse. National Journal writes on the many assumptions the that the CBO projection relies on:
"Though the new CBO data released on Wednesday paints a more optimistic picture than previous agency reports, this version is predicated on some highly fickle assumptions: from the prowess of the super committee to find consensus this fall, to increased revenue through the expiration of tax cuts, to decreased spending on programs such as federal unemployment benefits.
'If we continue current policies, we will end up with much larger deficits than what would occur under current law,' CBO Director Douglas Elmendorf said at a news conference. 'There is a good deal of work left to do.'"
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."
Those within the President's Office of Management and Budget believe that the CBO report shines well on President Obama's performance.
"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.
However AP writes that most of the improvement in this year's deficit picture comes from higher than anticipated tax collections from 2010 returns filed in the spring. Over the longer term the biggest savings are expected to come from the belt-tightening required in the new deficit reduction law, the report says.
Deficits could end up 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."
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.
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.
The Associated Press contributed to this story.