The federal budget deficit can be brought down if Congress follows through with mandated spending cuts and policy changes envisioned in current law — such as the expiration of Bush-era tax cuts — the Congressional Budget Office said Wednesday.
CBO projected the budget deficit to be $1.28 trillion in 2011 and $973 billion in 2012, based on current law. Both estimates are down from the office's March forecast, which had estimated budget deficits of $1.40 trillion and $1.08 trillion for 2011 and 2012, respectively.
The debt held by the public is estimated to be 62.1% of gross domestic product in 2011 and 71.2% in 2012.
But CBO cautioned that the savings will only be realized if provisions in certain laws are allowed to either expire, or take effect as planned.
Maintaining the policies currently in effect, like the Bush tax cuts and current payment levels for Medicare, "would boost cumulative deficits over the next 10 years by $5 trillion," CBO said. They would push the U.S. debt held by the public to 82% of gross domestic product by the end of 2021, the highest level since 1948.
The deficit reduction efforts face economic headwinds. CBO director Douglas Elmendorf told reporters Wednesday the economy "remains mired in a severe slump."
The unemployment rate is projected to stay above 8% until 2014, the agency said.
The CBO's economic forecasts were completed before the August stock market volatility. Several economic indicators have pointed toward a possible recession. If that information were taken into account, "we would have ended up with somewhat weaker economic growth in the second half" of 2011, Elmendorf said.
"We still believe that the economy will continue to grow in the second half of this year," he added.
Additionally, the CBO has "not tried to estimate the effects" of the Standard & Poor's downgrade of the federal government earlier this month, Elmendorf said.
The new CBO estimates were updated to include the Budget Control Act passed earlier this month to raise the debt ceiling. Savings from the law will begin to add up in 2013 once at least $1.2 trillion of savings is approved by Congress with revenues, spending cuts, or a combination of both. Overall, the law is expected to save $2.1 trillion from 2012 to 2021.
Reducing government spending presents an economic conundrum for the country's near- and long-term future. A smaller budget deficit would mean less borrowing in years to come and would give lawmakers more flexibility to respond to economic crises, according to Elmendorf.
But "reductions in government spending or increases in taxes in the next few years will reduce output and employment relative to what otherwise would occur," Elmendorf said.
Lawmakers reacted to the CBO numbers, saying they make the so-called super committee's deliberations and decisions more important.
House Speaker John Boehner, R-Ohio, said the CBO update "is further confirmation of the need for the president to abandon his reliance on short-term fixes and 'stimulus' spending gimmicks, and work with [Republicans] to remove government barriers that are standing in the way of long-term job growth." He said President Obama must support bipartisan deficit reduction efforts "while rejecting job-killing tax hikes."
However, House Minority Leader Nancy Pelosi, D-Calif., said the CBO report shows the super committee should "address job creation" efforts while working to reduce the deficit.
Senate Budget Committee chairman Kent Conrad, D-N.D., said the CBO report demonstrates that the super committee needs to go "beyond" its legal savings requirement of at least $1.2 trillion.