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Bleak Economic Projections as Obama Prepares for State of the Union Address

Congressional Budget Office warns of slow employment gains, unsustainable long-term fiscal situation, increasing debt

As President Barack Obama prepares to deliver his first State of the Union Address, he faces some bleak economic predictions from congressional budget analysts.  The Congressional Budget Office (CBO) on Tuesday projected slow improvements in employment and warned of an unsustainable longer-term fiscal situation against a background of rising debt.

The CBO projections came as the president vows to press ahead to achieve major policy changes he says the American people expect, such as health care and financial system reform, while recognizing signals sent by voters in Massachusetts where a Republican was elected to a traditionally Democratic Senate seat.

As Congress prepares to consider the president's 2011 fiscal year budget, due to be rolled out next week, the head of the independent Congressional Budget Office (CBO), Douglas Elmendorf, delivered this warning about the national unemployment situation:

"Employment will almost certainly increase this year.  But it will take considerable time for everyone looking for work to find jobs.  And we project that the unemployment rate will not return to its long-run sustainable level of 5 percent until 2014.  Thus, more of the pain of unemployment from this downturn lies ahead of us than behind us," Elmendorf said.

CBO estimates that the federal deficit will decline slightly in the current 2010 fiscal year to $1.35 trillion as the economy continues a slow recovery from severe recession, with a more substantial decline to $980 billion in 2011.

Elmendorf said improvements in the deficit are dependent on allowing tax cuts enacted under former President George W. Bush to expire.

He also pointed to what he called "a large and persistent imbalance between federal spending and revenues," adding that the economy is on an "unsustainable path":

"The country faces a fundamental disconnect between the services people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues they are prepared to send to the government to finance those services.  That fundamental disconnect will have to be addressed in some way if the nation is to avoid serious long-term damage to the economy and to the well-being of the population," Elmendorf said.

The bleak job picture and fears about the long-term impact of deficits are major problems for President Obama in this mid-term congressional election year.
 
He faces continued Republican opposition, and is expected to use his speech to point to achievements of his economic stimulus, while acknowledging dissatisfaction with the pace of progress so far.

On the eve of the address, Senate Republican minority leader Mitch McConnell renewed his criticism of President Obama and Democrats, asserting that their policies show they don't appear to understand American's concerns.

"The lesson of the last year should be crystal clear.  Americans aren't happy with the administration's approach.  They're tired of the spending, debt and government takeovers.  They want a step by step approach to our problems, not grand government experiments and schemes," McConnell said.

Responding directly, Senate Democrat Dick Durbin accused Republicans of obstruction, and ignoring progress in slowing job losses since President Obama began to deal with an economic crisis he inherited from his Republican predecessor:

"We have stared down at the abyss and we have drawn back and we are starting to regain our stride as we should.  But to dismiss this and say it is just a vain effort that had no impact is to ignore the obvious," Durbin said.

President Obama will propose a three-year freeze on non-security related federal spending to help control deficit growth, which the administration believes would save $250 billion over 10 years.  CBO Director Elmendorf called this "a step in the right direction but only a small step" toward controlling deficits.

In remarks previewing the tone of the president's State of the Union Address, House of Representatives Democratic leader Steny Hoyer said Democrats know that America's economic recovery is now their responsibility.

Criticizing Republicans who voted against the president's economic recovery plan and other legislation, Hoyer added that Democrats recognize the risks of deficit spending.

"The country is rightfully worried that Washington is spending too much money.  Democrats get it, and we will do something about it," Hoyer said.

White House press secretary Robert Gibbs declined to say what President Obama may say in his speech about the Massachusetts Senate election result which gave Republicans 41 seats, enough to block legislation.

Gibbs responded this way when asked what tone the president will adopt in his State of the Union Address:

"I don't doubt that at times he will be feisty, I don't doubt at times he is going to believe that while Washington may not want to make progress in certain ways then Washington has to be pushed to make that progress, whether that is health care reform or cutting our budget," Gibbs said.

Republicans in the House of Representatives rejected in advance what they called plans by the president to "spin the facts" regarding the fiscal situation, asserting that "historic debt and record deficits are a direct result of President Obama's big-spending agenda."

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