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The nonpartisan Congressional Budget Office released its fiscal outlook for January, projecting a record $1.5 trillion deficit this year and another $12 trillion over the coming decade if current tax and spending policies are extended.

The CBO report shows that federal revenue is starting to recover slowly from the depths of the recession and forecasts the economy adding about 2.5 million jobs a year over the next five years.

The CBO’s baseline forecast for the debt is considerably rosier — with a $7 trillion increase in the debt over the coming decade and annual deficits dropping by two-thirds in the next few years. But that baseline assumes that all of the Bush tax cuts expire after 2012 and that a large cut in doctors’ payments under Medicare takes effect. Extending the tax cuts and keeping doctors’ pay constant adds about $5 trillion more combined over the coming decade.

The CBO projected that would put the debt nearly equal to the size of the U.S. economy — higher than at any point since 1946.

President Barack Obama is due to release his own budget blueprint in the coming weeks — and on Tuesday night outlined a five-year discretionary spending freeze that would save $400 billion relative to projections, which assume inflationary increases. Republicans, however, have been demanding far more austerity.

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