The Congressional Budget Office is estimating that the federal budget deficit will hit $1.5 trillion this year, another new record.

The non-partisan budget agency is also predicting that next year's budget deficit will drop to $1.1 trillion.

The new report comes a day after President Obama pledged to work with congressional Republicans to reduce budget deficits and accumulated federal debt.

It also comes as Congress soon decides on raising the federal government's $14.3 trillion debt ceiling, a move some Republicans are resisting unless it is accompanied by major spending cuts from the administration.

The Associated Press notes that the higher deficit estimate reflects "bipartisan legislation passed in December that extended Bush-era tax cuts, unemployment benefits for the long-term jobless and provided a 2 per cent payroll tax cut this year. That measure added almost $400 billion to this year's deficit, the CBO says."

In his State of the Union speech last night, Obama said "we are living with a legacy of deficit spending." He proposed a five-year non-security spending freeze as well as cuts in the Pentagon budget.

House Republicans have proposed deeper cuts, but Obama said deficits shouldn't be reduced "on the backs of our most vulnerable citizens," or the needs of the nation.

"Cutting the deficit by gutting our investments in innovation and education is like lightening an overloaded airplane by removing its engine," he said. "It may make you feel like you're flying high at first, but it won't take long before you feel the impact."

Rep. Tom Price, R-Ga., chairman of the House Republican Policy Committee, said Obama ran up huge deficits his first two years in office, and now should back his rhetoric of reduction with realistic actions. Price said, "it remains to be seen if the White House and its allies in Congress will be a partner in solving the great challenges of our time."