WASHINGTON (AP) — A new report released Tuesday says the government's budget deficit is set to fall to $514 billion for the current year, down substantially from last year and the lowest by far since President Barack Obama took office five years ago.

The Congressional Budget Office report 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 CBO sees 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 over the coming decade than it had previously predicted.

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

CBO 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.

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.

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

The agency also predicts that the new health care law will have a dampening effect on employment, in part because of "Obamacare's" dampening effect on wages, but also because the law's subsidies would give some people less incentive to work. By 2017, CBO believes there will be 2 million fewer workers.

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.

A December budget agreement and last month's follow-up spending bill promise to buy peace through November's mid-term elections. Republicans also appear to be taking a less confrontational approach to legislation needed this month to increase the government's borrowing limit to avoid defaulting on its obligations.