The CBO reported Tuesday that the federal deficit will hit a five-year low. (Karen Bleier / AFP/Getty…)
WASHINGTON -- The federal deficit will drop to less than $1 trillion for the first time in five years, but massive spending cuts that have improved the budget outlook are also slowing the economy, according to a report released Tuesday by the Congressional Budget office.
The nonpartisan arbiter of federal budgets said the combination of new tax revenue from the "fiscal cliff" deal as well as looming cuts that kick in March 1 will push the deficit down to $845 billion for fiscal 2013. Deficits have topped $1 trillion in recent years.
The projections will fuel the coming budget debates, which started Tuesday as President Obama was calling on Congress to steer around the coming budget cuts.
The budget office said the cuts will contribute to an economy that lags in 2013. The unemployment rate likely will remain above 7.5% through the year. It predicted that the gross domestic product will be well below its potential, growing by just 1.4%, more than half a percentage point slower than would happen if the spending cuts were averted.
At the same time, the nation's debt load is expected to fluctuate but ultimately rise to record levels this decade, largely because of increased spending on healthcare and the federal safety net for older Americans with the aging of the baby boom population.
Additionally, the outlook shows how difficult it will be for House Republicans to accomplish their goal of balancing the budget in 10 years with potentially deep austerity measures.
Even though revenue is rising and spending is decreasing, the overall budget outlook remains stark. By the end of the decade, public debt is set to rise to 77% of GDP, a decade of highs on par with debt levels in World War II.
"The projected path of the federal budget remains a significant concern," the CBO wrote.
Follow Politics Now on Twitter and Facebook