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Federal budget deficit will top $1 trillion next year, government watchdog says

The federal deficit—the difference between the amount of money the government takes in and how much it spends—will exceed $1 trillion next year, a government watchdog says.

The Congressional Budget Office is upping its projections for this year's deficit by $63 billion and increasing its forecast for deficits over the next decade by $809 billion.

Starting next year, deficits will top $1 trillion, averaging about $1.2 trillion annually over the coming decade. The higher deficit projections come mostly from recent legislation to lift the nation's debt limit and reverse scheduled 10% cuts to defense and nondefense programs.

It's unusual for deficits to grow during times of economic expansion. However, economists are divided on whether high debt creates a drag on the U.S. economy. Record-high debt levels so far have not increased the interest the U.S. pays to borrow money.

The CBO's deficit estimate grew even though it reduced its projections for interest rates, lowering borrowing costs, and as it raised projections for economic growth in the near term.

"The nation's fiscal outlook is challenging. Federal debt, which is already high by historical standards, is on an unsustainable course," said CBO Director Phillip Swagel in a public letter.

To put the country on sustainable footing, Swagel said lawmakers will have to make significant changes to tax and spending policies.

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