WASHINGTON (AP) — The federal budget deficit will hit $1.28trillion this year, down slightly from the previous two years, witheven bigger savings to come over the next decade, according tocongressional projections released Wednesday.

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The nonpartisan Congressional Budget Office says budget deficitswill be reduced by a total of $3.3 trillion over the next decade,largely because of the deficit reduction package passed by Congressearlier this month.

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Nevertheless, the federal budget will be awash in red ink foryears to come. Even with the savings, budget deficits will totalnearly $3.5 trillion over the next decade — more if Bush-era taxcuts scheduled to expire at the end of 2012 are extended.

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The CBO doesn't foresee another recession, but the agencyprojects only modest economic growth over the next few years, withthe unemployment rate falling only slightly by the end of 2012. Theagency projects an unemployment rate of 8.5 percent for the lastthree months of 2012. The presidential election is in November ofthat year.

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"The United States is facing profound budgetary and economicchallenges," the new CBO report says. "With modest economic growthanticipated for the next few years, CBO expects employment toexpand slowly."

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There is good news for the more than 50 million people who getSocial Security benefits. After two years without a cost-of-livingadjustment, CBO now projects a 2.8 percent COLA for 2012, up fromthe 1.1 percent increase the agency previously projected. Theactual increase for 2012 will be announced in October. It is basedon a measure of inflation.

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At $1.28 trillion, this year's budget deficit would be the thirdhighest, surpassed only by the deficits registered in the past twoyears. The budget year runs through the end of September. ThroughJuly, the deficit totaled $1.1 trillion, the Treasury Departmentsaid.

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The new deficit projection for this year is $116 billion lowerthan the one made by CBO in March. Most of the change is fromhigher than anticipated tax collections from 2010 returns filed inthe spring, the report said.

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"A slight decrease in the projected deficit is nothing tocelebrate, particularly when it is accompanied by the grim newsthat CBO expects the national unemployment rate to continue toexceed 8 percent well past next year," said House Speaker JohnBoehner, R-Ohio. "The president's policies were supposed to keepthat from happening. Instead they've added trillions to our debt atthe expense of our children and helped put our nation's creditrating in jeopardy. Where are the jobs?"

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CBO's economic projections are more optimistic than those issuedby many private forecasters. If economic growth is weaker than theCBO projects, that could reduce future tax receipts and widen thebudget deficit.

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The CBO forecasts that the economy will grow 2.3 percent thisyear and 2.7 percent in 2012. By contrast, economists at Bank ofAmerica Merrill Lynch expect an expansion of only 1.7 percent thisyear and 2.3 percent in 2012. Analysts at JPMorgan Chase are evenmore pessimistic.

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The CBO completed its economic projections in early July, andacknowledged that the outlook has worsened since then. The stockmarket has fallen sharply since the nation's credit rating wasdowngraded earlier this month. And in late July the governmentsignificantly lowered its estimate of economic growth in the firstsix months of this year.

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"Incorporating that news would have led CBO to temper itsnear-term forecast for economic growth," the report said.

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Congress passed a deficit reduction package earlier this monththat cuts spending by $917 billion over the next decade forCabinet-level agencies and the thousands of federal programs theyadminister. The legislation also created a new joint, bipartisancommittee in Congress charged with coming up with $1.2 trillion to$1.5 trillion in additional savings by late November.

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If the committee of six Democrats and six Republicans agrees ona package, Congress must vote on it by late December. Failure topass a package would trigger $1.2 trillion in automatic spendingcuts, affecting the Pentagon as well as domestic programs.

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The new CBO report projects that the legislation will reducedeficits by a total of $2.1 trillion over the next decade. Theagency also projects savings of $600 billion over the next decadefrom lower interest rates. Much of the rest of the savings camefrom technical updates to CBO's revenue and spending forecasts, thereport said.

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The agency, however, warns that spending cuts and caps in thedeficit reduction package will limit the government's ability toprovide support for the economy, "and thereby restrain economicgrowth over the next few years."

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"CBO's report is yet more evidence that Congress faces a twinchallenge of a sluggish near-term economy and a still very seriouslong-term debt threat," said Sen. Kent Conrad, D-N.D., chairman ofthe Senate Budget Committee. "Congress cannot afford to ignoreeither challenge."

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Conrad said CBO's projections illustrate the need for the newjoint committee to reduce the deficit by much more than $1.5trillion. Conrad called for a deficit reduction package of at least$4 trillion over the next decade, a target that many economists sayis necessary for the government to get its finances in order.

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Rep. Chris Van Hollen of Maryland, ranking Democrat on the HouseBudget Committee, said, "The CBO outlook underscores the need forthe joint committee to propose a plan to help put America back towork, coupled with a blueprint to reduce the long termdeficit."

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Associated Press writer Christopher Rugaber contributed to thisreport.

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