Deficit to hit $1.35 trillion this year, CBO says

WASHINGTON — The U.S. budget deficit will hit $1.35 trillion in 2010, congressional budget analysts estimated Tuesday, in a fresh piece of grim news for President Barack Obama.

The estimate from the Congressional Budget Office assumes current laws and policies remain unchanged.

Economic growth will also probably be “muted” for the next few years, the CBO said in its budget outlook for 2010.

The CBO’s estimates come about a week before Obama transmits his fiscal 2011 budget to Congress, on Feb. 1. Obama is under mounting pressure to cut the deficit but also to create jobs, in the wake of last week’s victory in a special Senate election in Massachusetts by Republican Scott Brown.

The House already has approved a $156-billion package aimed at job creation, while the Senate is drafting a separate $80-billion proposal that includes tax cuts for companies that hire new workers among other steps.

The deficit figure is a bit smaller than earlier
projected, but still would be the second largest since World War II.
The largest was $1.4 trillion in fiscal 2009. That number was more than three times as much as in 2008.

The CBO sees the deficit falling to $980 billion by next year, but only if several tax cuts are allowed to expire. Farther out, the deficit is projected to fall to $480 billion by 2015, also assuming a bevy of tax cuts are allowed to expire.

In his first State of the Union address Wednesday
night, Obama is expected to call for a three-year freeze in spending
for a portion of the federal budget in a first step toward reining in
the deficit.

The government has reported a consistent flow of red
ink in the past several months. In December, the federal government ran
a budget deficit of $91.8 billion, marking the 15th consecutive month in which outlays exceeded receipts.

Obama is planning to outline a series of
economy-related priorities in his State of the Union address, including
deficit reduction.

The proposed spending freeze would reportedly stop
increases in some categories of federal funding not related to national
security but would shave no more than $15 billion off next year’s projected deficit of well above $1 trillion.

Meanwhile, the Senate Tuesday is likely to reject a White House-backed
plan to create a commission charged with finding ways to cut the
deficit. Obama has told lawmakers that if the vote fails, he will
create such a task force through an executive order.

Before it ran into trouble after Brown’s election, the White House-backed health care overhaul was projected to cut the deficit by between $109 billion and $130 billion
over 10 years. But congressional Democrats have had to rethink their
strategy for getting health reform proposals approved after the loss of
the party’s 60-seat majority in the Senate.

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