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.