The Congressional Budget Office (CBO) on Wednesday estimated deficits over the next 10 years will total $3.5 trillion, about half of what was projected at the beginning of the year.
The budget office also estimates this year’s deficit will be $1.284 trillion, $116 billion less than what was forecast in March.
The better forecast is due to two factors, CBO said. It reflects cuts mandated by the debt-ceiling deal signed into law earlier this year, and interest rate payments on the debt that are expected to be lower.
CBO trimmed another $1.2 trillion because it expects lower interest rates on U.S. debt will be kept in place due to weakened economic growth.
Although the numbers are an improvement, CBO said budgetary challenges remain “profound.”
The nation is on track to record its third straight year with deficits above $1 trillion. This year is set to come in as the third-worst budget deficit ever, after 2010 and 2009.
Even with the debt-ceiling deal in place, the national debt is forecast to grow to $14.5 trillion by 2021, CBO said.
CBO also has substantially weakened its outlook for the economy compared to its January report. It now expects 2.3 percent growth in 2011 and 2.7 percent growth in 2012, compared to a January forecast of 3.1 percent growth for the year.
CBO forecasts 8.5 percent unemployment at the end of 2012, when President Obama faces reelection.
The agency’s forecast for the deficit also depends on several dubious assumptions: it expects all of the Bush-era tax rates to expire in 2013, and forecasts a sharp reduction in Medicare payments to doctors, which Congress has never allowed to take effect.
CBO has much rosier forecasts for the middle of the decade, with growth reaching 5.3 percent by fiscal 2015. This is a better forecast than the 3.7 percent growth CBO projected for 2015 in January.
In reaction to the CBO numbers, Republicans emphasized the need to make deeper cuts to achieve lower debt reduction, while Democrats said the report shows the need to boost the economy now.
“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,” Speaker John BoehnerJohn Andrew BoehnerRift widens between business groups and House GOP Juan Williams: Pelosi shows her power Debt ceiling games endanger US fiscal credibility — again MORE (R-Ohio) said in a statement.
“This reports confirms again that years of reckless overspending have not produced the economic growth or the jobs that the President promised and that American families need,” added House Budget Committee Chairman Paul RyanPaul Davis RyanJuan Williams: Pelosi shows her power Cheney takes shot at Trump: 'I like Republican presidents who win re-election' Cheney allies flock to her defense against Trump challenge MORE (R-Wis.).
Ryan described the debt deal as a “modest down payment” and only a first step in reducing deficits.
Rep. Chris Van Hollen (D-Md.), a member of the deficit supercommittee charged with finding at least $1.2 trillion in additional cuts, said the CBO report underscores the need for that panel to propose a plan that will to “help put America back to work.”
He said it should be coupled with a “blueprint” to reduce the long-term deficit.
Senate Budget Committee Chairman Kent Conrad (D-N.D.), however, said the CBO report shows the supercommittee must go beyond its mandate and seek a $4 trillion deficit-reduction package that includes economic stimulus.
“The report by CBO is proof positive that Congress’s new special committee must act smartly as it develops a long-term deficit reduction plan,” Conrad said. “This committee needs to think big on multiple fronts. First, it must take on the immediate urgency of putting people back to work now so that the economy strengthens,” he said.
—This story was posted at 9:29 a.m. and updated at 11:08 a.m.