US deficit projected at $1.35 trillion

WASHINGTON (AP) - The latest congressional budget estimates out Tuesday predict a $1.35 trillion deficit for this year as the U.S.economy continues to slowly recover from the recession.

The Congressional Budget Office report predicts a sluggish economic recovery and continued high deficits that present political problems for President Barack Obama and his Democratic allies.

The White House is under considerable pressure to cut deficits - the red ink hit a record $1.4 trillion last year - or at least keep them from growing. Encouraged by last week's Massachusetts Senate victory, Republicans are hitting hard on the issue, and polls show voters increasingly concerned ahead of elections in November.

The report sees a slow rebound of the economy, with unemployment averaging 10.1 percent this year as the economy grows by just over 2 percent. It would grow only slightly more next year with an unemployment rate of 9.5 percent.

"Economic growth in the next few years will probably be muted in the aftermath of the financial and economic turmoil," the CBO report says.

The latest estimates also see a $1.35 trillion deficit for the current budget year, dropping to $980 billion next year - but only if a host of tax cuts enacted under President George W. Bush are allowed to expire.

It is a sobering reminder of the fundamental imbalance of the federal government's budget that comes just days before Obama's Feb. 1 budget submission. The White House says Obama will propose a three-year freeze on domestic agency budgets, though the savings would barely make a dent. It has not said whether Obama will proposes tax hikes or cuts to spiraling health and pension benefit programs.

The deficit would slide to $480 billion by 2015, CBO says, but only if tax cuts on income, investments and large estates are allowed to expire at the end of this year. Most budget experts see deficits as far higher once tax cuts and other policies are factored in.

The 2010 deficit figure is in line with previous estimates and would be a slight decline from last year's $1.4 trillion shortfall. But plans afoot on in Congress Hill for a new jobs bill and a coming Obama request for war funds would add to the total.

The figures arrived just hours before the Senate is likely to reject a White House-backed plan to establish a bipartisan task force to recommend steps to curb the deficit.

The figures bring continued bad news on the deficit, keeping the pressure on Obama and congressional Democrats to demonstrate they are serious about taking on the flood of red ink.

The spending freeze, expected to be proposed by Obama during the State of the Union address on Wednesday, would apply to a relatively small portion of the federal budget, affecting a $477 billion pot of money available for domestic agencies whose budgets are approved by Congress each year. Some of those agencies could get increases, others would have to face cuts; such programs got an almost 10 percent increase this year. The federal budget total was $3.5 trillion.