The report predicted the deficit would dip to $430 billion by 2015, the lowest since the government posted a $459 billion deficit is former President George W. Bush's last year in office. That would be a relatively low 2.4 percent when measured against the size of the economy. But deficits would move higher after that and again reach near $1 trillion in the latter portion of the 10-year window despite the recently enacted tax increase on family income exceeding $450,000 and automatic spending cuts of about $100 billion a year. The package of spending cuts and tax increases are punishment for Washington's failure to strike a long-term budget pact.
"We need to continue working to cut spending responsibly, protect and strengthen programs like Medicare, and raise revenue by closing tax loopholes that the wealthiest Americans and biggest corporations take advantage of," said Senate Budget Committee Chairman Patty Murray, D-Wash.
Over the coming decade, the deficit would total $7 trillion.
The report provided fresh fodder for Washington's familiar battles over the budget, deficits and debt. Obama inherited an economy in crisis and first-ever deficits exceeding $1 trillion. The 2009 deficit, swelled by the costs of the Wall St. bailout, hit a record $1.4 trillion, while the deficits of 2010 and 2011 both registered $1.3 trillion.
Economists says that too-high deficits and debt are a drag on the economy and could eventually precipitate a fiscal crisis like many European countries are experiencing.
The economy will grow slowly in 2013 and more rapidly next year, with unemployment projected to stay high, according to the report.
This year's growth is being hampered by a tax increase enacted in January and by automatic spending cuts scheduled to take effect this spring. CBO projects the economy will grow by just 1.4 percent this year but recover to 3.4 percent next year.
Unemployment is projected to stay above 7.5 percent through next year. That would be the sixth straight year above that level, the longest period of such high unemployment in 70 years, the report said.
Without the government's fiscal tightening, which includes the expiration of Obama's two-year, 2 percentage point cut in payroll taxes and the imposition of the automatic spending cuts, economic growth would be about 1.5 percentage points higher this year, the report said. However, CBO warns that future growth would be constrained if the government doesn't reduce future deficits.
The report warns that actual deficits could easily be higher since CBO is required to assume Congress sticks to the letter of the law.
The report says that health spending will continue to grow as Obama's health care law takes full effect. CBO said spending on major health care programs will surpass Social Security in 2014, as Obama's push to cover the uninsured goes into high gear. Major health care programs include Medicare, Medicaid, children's health insurance and the new subsidies to help uninsured Americans get coverage.