US deficit to hit $3 trillion in 2021: CBO

US deficit to hit $3 trillion in 2021: CBO
© Bonnie Cash

The Congressional Budget Office (CBO) on Thursday projected the U.S. deficit to reach $3 trillion in 2021 and average $1 trillion per year over the next decade.

The new forecast released by the nonpartisan budget scorekeeper for Congress showed the deficit falling $130 billion from 2020 but ending three times higher than the 2019 budget shortfall. The deficit will reach its second-highest level since 1945, according to the CBO projections, and equal roughly 13 percent of U.S. gross domestic product.

"The economic disruption caused by the 2020–2021 coronavirus pandemic and the legislation enacted in response continue to weigh on the deficit (which was already large by historical standards before the pandemic)," CBO said in the forecast.

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Former President TrumpDonald TrumpFive takeaways from the Ohio special primaries Missouri Rep. Billy Long enters Senate GOP primary Trump-backed Mike Carey wins GOP primary in Ohio special election MORE and President BidenJoe BidenFive takeaways from the Ohio special primaries FDA aims to give full approval to Pfizer vaccine by Labor Day: report Overnight Defense: Police officer killed in violence outside Pentagon | Biden officials back repeal of Iraq War authorization | NSC pushed to oversee 'Havana Syndrome' response MORE approved roughly $6 trillion combined in COVID-19 response and economic relief legislation. While the measures ballooned the national debt, they provided essential support to the economy that economists believe prevented a much a deeper, longer downturn.

CBO also projected GDP to increase by 7.4 percent in 2021 as the economy rebounds from the pandemic-driven recession, but fall to an annual average of 1.6 percent between 2026 and 2031.

Inflation is also projected to rise 2.8 percent in 2021 as measured by the personal consumption expenditures price index, the Federal Reserve's preferred gauge of prices increases. While inflation is close to a 5 percent annualized rate, economist expect price growth to return toward normal levels as the economy normalizes.

CBO's new forecast was released just one month before the legal limit on the federal debt kicks back in Aug. 1. Republican lawmakers have warned that they will refuse to back a debt ceiling hike without spending cuts or other debt reduction measures, a non-starter for Democrats as they attempt to pass trillions more in spending on infrastructure.

Updated at 2:40 p.m.