http://thehill.com/homenews/news/78077- ... nable-path

Budget Office: The government's finances on ‘unsustainable path’
By Walter Alarkon - 01/26/10 01:46 PM ET
The 2010 federal budget deficit will be $1.35 trillion, nearly as large as last year's record $1.4 trillion budget shortfall, according to the independent Congressional Budget Office.

The CBO, in its budget outlook released Tuesday, also projected a "muted" economic recovery over the next few years. The unemployment rate will average more than 10 percent for the first half of this year and then decline at a slower pace than in past recoveries, the CBO said. The jobless rate won't return to a sustainable level of 5 percent until 2014, the budget office predicted.

"More of the work lies ahead of us, instead of behind us," said CBO Director Douglas Elmendorf.

The CBO's 2010 deficit projection is slightly larger than the $1.27 trillion deficit projected by the Obama administration in its budget review last summer. The White House projections will be updated next week, when the president unveils his budget proposal for next year.

Deficits would average roughly $600 billion for the next decade, the CBO said.

"U.S. fiscal policy is on an unsustainable path to an extent that cannot be solved by minor tinkering," Elmendorf said.

He said there was a "fundamental disconnect" between the services that Americans expect from government, particularly elderly citizens on Social Security and Medicare, and the taxes that Americans are prepared to pay.

Elmendorf cautioned that the CBO's projection is based on the expiration of the 2001 and 2003 tax cuts and the application of the alternative minimum tax after this year. President Barack Obama and senior Democrats in Congress support extending the tax cuts for Americans making less than $200,000 and blocking the alternative minimum tax from hitting the middle class, moves that would cost billions but also improve prospects for economic growth, the CBO noted.

If President Barack Obama and Democrats' tax policies are enacted, the CBO's economic growth projections would be similar to the slightly more optimistic predictions of the independent Blue Chip economists.

Democrats noted that the CBO report shows an economy that's improving but also daunting deficits.

“Today’s report from CBO confirms that the recession inherited from the Bush Administration continues to erode the budget’s bottom line, and that the economic rescue efforts needed to spur the recovery have had an impact as well," House Budget Committee Chairman John Spratt (D-S.C.) said.

Republicans said that Democrats are only paying "lip service" to the red ink problem.

“These numbers are just staggering, and it appears that the sky is the limit for this tax-spend-and borrow Democratic majority," said Sen. Judd Gregg (R-N.H.), ranking member of the Senate Budget Committee.

The CBO projection comes at the same time the Senate debates a $1.9 trillion increase in the $12.4 trillion debt ceiling. That limit must be raised by mid-February to allow the government to avoid default and continue borrowing money.

Feeling pressure to show fiscal responsibility, Obama plans to propose a three-year freeze on domestic discretionary spending unrelated to national security in his budget request for 2011, which will be released Monday. Obama will tout the freeze in his State of the Union address Wednesday.

The freeze would save $250 billion over the next decade and would apply only to spending that makes up roughly an eighth of the entire $3.55 trillion budget.