The federal government’s deficit will reach $1.3 trillion in 2011, but will fall rapidly and shrink the nation’s 10-year deficit to $3.5 trillion, if Congress does not extend popular tax-cuts and spending programs, according to a report released today at 9:30 a.m. by the nonpartisan Congressional Budget Office.

But if those popular programs are continued, the 10-year deficit will reach $8.5 trillion, said the CBO’s report: “Annual deficits from 2012 through 2021 would average 4.3 percent of GDP, compared with 1.8 percent in CBO’s baseline projections … [and] debt held by the public would reach 82 percent of GDP by the end of 2021, higher than in any year since 1948.”

Wednesday’s report is an update of the CBO’s January annual report, which forecast a 2011 deficit of $1.5 trillion and a 10-year deficit of $6.97 trillion.

The January numbers were based on a forecast of improved economic growth, which would reach 3.1 percent in 2011 and 2.8 percent in 2012, amid an inflation rate of less than 2 percent.

But the CBO is now predicting slower growth. “CBO projects that real GDP will increase by 2.3 percent this year and by 2.7 percent next year,” said the new report.

That slower growth boosts this year’s deficit to $1.3 trillion, the third largest in U.S. history.

Growth may slow even further, boosting deficits, the report warns. “The forecast described in this report does not reflect any other developments since early July, including the recent swings in financial markets and the annual revision to the national income and product accounts … Incorporating that recent news and economic data would have led CBO to temper its near-term forecast for economic growth,” the report said.

The CBO is required to assume that Congress will continue existing law — meaning that it will not extend the tax cuts signed by President George Bush in 2003 and President Barrack Obama in 2011, won’t extend the alternative minimum tax, and will cut fees paid to Medicare doctors according to the timeline of current law.

But the CBO’s report also recognizes that Congress has repeatedly extended those popular programs and taxes.

That’s why it included a second deficit prediction, effective if Congress again extends those popular programs and taxes. “With cumulative deficits during that decade of nearly $8.5 trillion, debt held by the public would reach 82 percent of GDP by the end of 2021, higher than in any year since 1948,” said the report.

The CBO also assumes spending increases established in 2009 and 2010 by Democratic congressional leaders will continue, and that President Obama’s health care overhaul will remain in force. Discretionary spending, for example, rose from $1.15 trillion in 2008 to $1.38 trillion in 2010. If continued, that would increase the CBO’s spending forecast by at least $180 billion per year.

CBO director Doug Elmendorf, is scheduled to hold a press conference on the new report at 11:00 a.m.

In January the federal government’s legal debt topped $14 trillion, and $14.6 trillion in August. That’s a $4 trillion increase since President Barack Obama took office in January 2009.

However, the federal government has also committed to spend future funds on numerous discretionary programs and entitlement programs, such as Medicare. The gap between those commitments and likely tax revenue is $211 trillion, partly because of the post-retirement expectations of 78 million baby boomers, according to Boston University professor, Laurence Kotlikoff, who worked on the White House’s Council of Economic Advisers for President Ronald Reagan. To close that huge gap, Kotlikoff said, federal government spending should be cut by 40 percent, or taxes should be raised by roughly 65 percent, he told NPR on August 6.