CBO sees $1.3 trillion U.S. budget deficit for fiscal 2011

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The U.S. economy will have another big budget deficit in fiscal 2011 and faces at least a couple more years of sluggish growth, including headwinds in 2013 when the debt deal reached by Congress earlier this month takes hold, government forecasters said Wednesday.

The U.S. Congressional Budget Office projected a deficit of almost $1.3 trillion for fiscal 2011, reflecting a continued slump in tax revenue and elevated federal spending in response to the weak economy. It warned that deficits will skyrocket if some current tax and spending policies, such as income tax cuts and a payroll-tax holiday, are extended.

"Maintaining certain policies that are currently in effect--by extending certain tax provisions slated to expire and preventing cuts to payments for physicians services under Medicare--would boost cumulative deficits over the next 10 years by $5 trillion [more than] the amounts projected in the baseline, pushing debt held by the public...to 82% of GDP by the end of 2021," the forecast said.

The outlook for the U.S. economy also remains challenging, with growth expected to remain too slow this year and next year to make a big dent in the unemployment rate. The jobless rate will fall to 8.9% by the end of calendar 2011 and 8.5% by the end of 2012, the forecast said, as the economy grows by 2.3% this year and 2.7% next year, measured from fourth quarter to fourth quarter.

The debt deal reached by Congress earlier this month will also "lead to significant fiscal restraint in 2013," forecasters said.

The third straight year of deficits above $1 trillion will push the share of U.S. debt held by the public to 67% of gross domestic product--the most since 1950, budget forecasters said. At $1.284 trillion for this year, the budget deficit will total 8.5% of U.S. GDP.



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