WASHINGTON — The Congressional Budget Office said Wednesday that the economic recovery would continue “at a modest pace” for the rest of the year, but that if Congress takes no action to stave off tax increases and automatic budget cuts scheduled for Jan. 1, the economy could fall into a recession.
The nonpartisan analysis predicted total economic output would shrink and the jobless rate would rise to about 9 percent in the second half of 2013. That analysis echoes those of many other private and government forecasts.
For the remainder of 2012, the office said, the unemployment rate would remain above 8 percent and the federal budget deficit would total $1.1 trillion.
In its semiannual report, the budget office said that the economy was somewhat weaker than it had projected in January.
Fears about tax increases and spending cuts — the “fiscal tightening” — are depressing economic growth, it said.
“Economic output would be greater and unemployment lower in the next few years if some or all of the fiscal tightening scheduled under current law was removed,” the report said.
The Federal Reserve chairman, Ben S. Bernanke, who coined the term “fiscal cliff,” has warned policy makers about its dire potential consequences for months. He has urged them to soften the blow to the economy by delaying some of the looming tax increases or spending cuts.
“The most effective way that the Congress could help to support the economy right now would be to work to address the nation’s fiscal challenges in a way that takes into account both the need for long-run sustainability and the fragility of the recovery,” he told the Senate Banking Committee this summer.
“Doing so earlier rather than later would help reduce uncertainty and boost household and business confidence.”
The Fed has noted that the recovery has slowed this year, but it has declined to take new measures to bolster demand.
Minutes from the top policy making committee’s meeting earlier this month, which might shed light on its thinking about the economy and interest rates, are due to be released at 2 p.m.
Eastern time Wednesday. In the current fiscal year, which ends on Sept. 30, the budget office estimates that federal spending will total $3.56 trillion, while the government will collect $2.44 trillion in revenue. The projected deficit is equivalent to 7.3 percent of the economy.
The report said the budget office sees the economy shrinking at an annual rate of 2.9 percent in the first half of next year and growing at an annual rate of 1.9 percent in the second half.
Last January, the budget office predicted that the economy would grow by one-half of 1 percent in 2013.
Now it predicts that the economy will contract by one-half of 1 percent, partly as a result of the “sudden and sizable fiscal tightening” scheduled to occur under current law.
The budget office said that 2012 would be “the fourth year in a row with a deficit more than $1 trillion.”
“Federal debt held by the public will reach 73 percent of gross domestic product by the end of this fiscal year — the highest level since 1950 and about twice the 36 percent of G.D.P. that it measured at the end of 2007, before the financial crisis and recent recession,” said Douglas W. Elmendorf, the director of the budget office.
House Speaker John A. Boehner said the new report showed an urgent need for legislation to stop the impending tax increases and the looming cuts in military spending.
“Instead of threatening to drive us off the fiscal cliff and tank our economy in their quest for higher taxes, I would urge President Obama and Congressional Democrats to work with us,” Mr. Boehner said.
A White House official said Congress should respond by approving President Obama’s tax and spending proposals.
“Instead of doing the right thing,” said Jay Carney, the White House press secretary, “Republicans in Washington have chosen to double down on the same failed policies that led to the economic crisis in the first place.
They’re willing to hold the middle class hostage unless we also give massive new tax cuts to millionaires and billionaires — tax cuts we can’t afford that would do nothing to strengthen the economy.
”The budget office said that the economy would be stronger and the deficit would total $1 trillion under “an alternative fiscal scenario.”
The alternative assumes that most expiring tax provisions are extended indefinitely, automatic spending cuts do not occur, and Medicare payments to doctors are frozen, instead of being reduced by 27 percent on Jan. 1 as scheduled.
Mr. Elmendorf, the director of the budget office, said that under the alternative fiscal scenario “there would be two million more jobs” next year.
However, he said, those policies would also lead to “far larger deficits and much greater debt,” and “the economy would grow more slowly over the 2018-2022 period.”
If Congress cannot break the impasse on tax and fiscal policy and if current law remains in place, the budget office said, the federal deficit will plunge, to $641 billion in the fiscal year 2013 and to $387 billion in 2014.
From the report, it is possible to compare the cost of tax policies favored by President Obama and Congressional Republicans.
Most Republican lawmakers want to extend tax cuts adopted in 2001 and 2003 for all taxpayers, while Mr. Obama would allow the tax cuts to expire for the portion of adjusted gross income exceeding $200,000 for individuals and $250,000 for couples.
The budget office and the Congressional Joint Committee on Taxation estimated that, under the Republican policies, the government would lose $247 billion in revenue next year and a total of $4.5 trillion from 2013 to 2022.
By contrast, the agencies said, under the tax policies proposed by Mr. Obama, the government would lose $205 billion in revenue next year and a total of $3.7 trillion over 10 years. To cover the increased deficits, the government would need to borrow more.
Over 10 years, the higher debt service costs would total $717 billion under the Republican tax proposals and $590 billion under Mr. Obama’s proposals.
Remarkably, the budget office said that total federal spending would decline slightly this year, by $40 billion, from 2011 to 2012.
In part, that reflects lower spending for war-related activities in Iraq and Afghanistan, less spending on unemployment compensation and the winding down of spending that Congress authorized in 2009 in an effort to stimulate the economy.
nytimes.com
The nonpartisan analysis predicted total economic output would shrink and the jobless rate would rise to about 9 percent in the second half of 2013. That analysis echoes those of many other private and government forecasts.
For the remainder of 2012, the office said, the unemployment rate would remain above 8 percent and the federal budget deficit would total $1.1 trillion.
In its semiannual report, the budget office said that the economy was somewhat weaker than it had projected in January.
Fears about tax increases and spending cuts — the “fiscal tightening” — are depressing economic growth, it said.
“Economic output would be greater and unemployment lower in the next few years if some or all of the fiscal tightening scheduled under current law was removed,” the report said.
The Federal Reserve chairman, Ben S. Bernanke, who coined the term “fiscal cliff,” has warned policy makers about its dire potential consequences for months. He has urged them to soften the blow to the economy by delaying some of the looming tax increases or spending cuts.
“The most effective way that the Congress could help to support the economy right now would be to work to address the nation’s fiscal challenges in a way that takes into account both the need for long-run sustainability and the fragility of the recovery,” he told the Senate Banking Committee this summer.
“Doing so earlier rather than later would help reduce uncertainty and boost household and business confidence.”
The Fed has noted that the recovery has slowed this year, but it has declined to take new measures to bolster demand.
Minutes from the top policy making committee’s meeting earlier this month, which might shed light on its thinking about the economy and interest rates, are due to be released at 2 p.m.
Eastern time Wednesday. In the current fiscal year, which ends on Sept. 30, the budget office estimates that federal spending will total $3.56 trillion, while the government will collect $2.44 trillion in revenue. The projected deficit is equivalent to 7.3 percent of the economy.
The report said the budget office sees the economy shrinking at an annual rate of 2.9 percent in the first half of next year and growing at an annual rate of 1.9 percent in the second half.
Last January, the budget office predicted that the economy would grow by one-half of 1 percent in 2013.
Now it predicts that the economy will contract by one-half of 1 percent, partly as a result of the “sudden and sizable fiscal tightening” scheduled to occur under current law.
The budget office said that 2012 would be “the fourth year in a row with a deficit more than $1 trillion.”
“Federal debt held by the public will reach 73 percent of gross domestic product by the end of this fiscal year — the highest level since 1950 and about twice the 36 percent of G.D.P. that it measured at the end of 2007, before the financial crisis and recent recession,” said Douglas W. Elmendorf, the director of the budget office.
House Speaker John A. Boehner said the new report showed an urgent need for legislation to stop the impending tax increases and the looming cuts in military spending.
“Instead of threatening to drive us off the fiscal cliff and tank our economy in their quest for higher taxes, I would urge President Obama and Congressional Democrats to work with us,” Mr. Boehner said.
A White House official said Congress should respond by approving President Obama’s tax and spending proposals.
“Instead of doing the right thing,” said Jay Carney, the White House press secretary, “Republicans in Washington have chosen to double down on the same failed policies that led to the economic crisis in the first place.
They’re willing to hold the middle class hostage unless we also give massive new tax cuts to millionaires and billionaires — tax cuts we can’t afford that would do nothing to strengthen the economy.
”The budget office said that the economy would be stronger and the deficit would total $1 trillion under “an alternative fiscal scenario.”
The alternative assumes that most expiring tax provisions are extended indefinitely, automatic spending cuts do not occur, and Medicare payments to doctors are frozen, instead of being reduced by 27 percent on Jan. 1 as scheduled.
Mr. Elmendorf, the director of the budget office, said that under the alternative fiscal scenario “there would be two million more jobs” next year.
However, he said, those policies would also lead to “far larger deficits and much greater debt,” and “the economy would grow more slowly over the 2018-2022 period.”
If Congress cannot break the impasse on tax and fiscal policy and if current law remains in place, the budget office said, the federal deficit will plunge, to $641 billion in the fiscal year 2013 and to $387 billion in 2014.
From the report, it is possible to compare the cost of tax policies favored by President Obama and Congressional Republicans.
Most Republican lawmakers want to extend tax cuts adopted in 2001 and 2003 for all taxpayers, while Mr. Obama would allow the tax cuts to expire for the portion of adjusted gross income exceeding $200,000 for individuals and $250,000 for couples.
The budget office and the Congressional Joint Committee on Taxation estimated that, under the Republican policies, the government would lose $247 billion in revenue next year and a total of $4.5 trillion from 2013 to 2022.
By contrast, the agencies said, under the tax policies proposed by Mr. Obama, the government would lose $205 billion in revenue next year and a total of $3.7 trillion over 10 years. To cover the increased deficits, the government would need to borrow more.
Over 10 years, the higher debt service costs would total $717 billion under the Republican tax proposals and $590 billion under Mr. Obama’s proposals.
Remarkably, the budget office said that total federal spending would decline slightly this year, by $40 billion, from 2011 to 2012.
In part, that reflects lower spending for war-related activities in Iraq and Afghanistan, less spending on unemployment compensation and the winding down of spending that Congress authorized in 2009 in an effort to stimulate the economy.
nytimes.com
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