Record deficits projected for third year, economic slump to continue, budget office says

The federal deficit will hit $1.3 trillion for fiscal 2011, the third consecutive year of record shortfalls -- and an emerging campaign theme for GOP attacks on President Obama and congressional Democrats.

The deficits of the last three years are at levels unseen since World War II and stem from the “long shadow” cast on the economy by the financial crisis and recession, the Congressional Budget Office said Wednesday.

The recent budget accord struck by Congress will help to reduce the nation’s future debt load by slashing spending, as will the expiration of $4 trillion in tax breaks from the George W. Bush administration at the end of 2012, the nonpartisan budget office wrote. Cumulative deficits over the next decade will hit $3.5 trillion instead of $6.7 trillion.

But achieving that level of deficit reduction is based on assumptions that face enormous political hurdles. Both the projected spending cuts and taxes are under the purview of the new congressional super-committee that has less than three months to develop a deficit-cutting proposal.

Many are skeptical that the super-committee will be able to find compromise on these issues that have divided Washington, especially in a partisan environment that is expected to become more heated as the poor jobs outlook and economy are expected to dominate the campaign season.

“The United States is facing profound budgetary and economic challenges,” the budget office wrote.

The 2011 deficit will amount to 8.5% of the nation’s gross domestic product and is the third largest shortfall in 65 years -- surpassed only by those of 2009 and 2010.

The nation’s economy will continue to struggle, with GDP expected to reach 2.3% this year, a still sluggish rate. The recent crisis in the financial markets here and overseas threatens to prolong the slump, the report said.

Unemployment, a top issue among voters, is expected to remain at 9.1% this year, dipping to 8.5% by next fall’s election.

Republicans have seized on the deficits as a top campaign theme as Obama and Democrats have hammered back that they inherited the financial problems and the country endured the most significant downturn since the Great Depression.

lmascaro@tribune.com