WASHINGTON - The U.S. budget deficit is set to fall to $514 billion this year, down substantially from last year and the lowest level by far since President Obama took office five years ago, a congressional report said Tuesday.

The Congressional Budget Office credits higher tax revenues from the rebounding economy and sharp curbs on agency spending as the chief reason for the deficit's short-term decline.

But the budget experts see the long-term deficit picture worsening by about $100 billion a year through the end of the decade because of slower growth in the economy than they had previously predicted.

Last year's deficit registered $680 billion. Obama inherited an economy in crisis and the first deficits ever to exceed $1 trillion.

2009 deficit set record

The 2009 deficit, swelled by the costs of the Wall Street bailout, hit a record $1.4 trillion, while the deficits of 2010 and 2011 both registered $1.3 trillion.

The report predicted the economy will continue to rebound this year and grow at a 3.1 percent rate and by 3.4 percent next year. It foresees the jobless rate holding steady at 6.8 percent this year; the most recent nationwide unemployment rate registered 6.7 percent. It predicts the jobless rate remaining above 6 percent through the remainder of Obama's term.

The agency sees the deficit sliding to $478 billion next year before beginning a steady rise years through 2024 that would bring deficits back above $1 trillion a year.

"CBO expects that economic growth will diminish to a pace that is well below the average seen over the past several decades," the report said, citing an aging population and decrease in the rate of growth in the labor force.

Looming demographics

As it has for many years, CBO predicts the stark demographics of the nation's retirement programs, especially the growth of Medicare, would eventually spark a debt crisis. The growth of Medicare has been driven by medical inflation. But the ratio of people paying into the program to those receiving benefits is shrinking as the baby boom generation retires.

Economists say that too-high deficits and debt are a drag on the economy and squeeze out investment and, if unchecked, could eventually precipitate a European-style fiscal crisis.

Tuesday's report comes as Obama and Republicans in Congress are taking a respite in the budget wars that have periodically consumed Washington since Republicans took control of the House in 2011. The declining deficit numbers mean there's even less urgency to act now.