Ten Year Congressional Budget Outlook Predicts Slow Growth
February 7, 2013
The Congressional Budget Office (CBO) predicts sluggish overall economic growth for 2013, but sees promise for 2014 and beyond. Despite gradual improvement in many of the important sectors that drive economic growth, the CBO expects fiscal tightening (such as the payroll tax cut expiring and increased tax rates for some high income individuals) coupled with unresolved budget issues will limit real gross domestic product (GDP) growth to just 1.4 percent.
- Provided current laws remain the same, the budget deficit is projected to shrink for a fourth year in a row in 2014 to an estimated $845 billion, which represents 5.3 percent of GDP.
- Increased revenues, which are projected to grow from 15.8 percent of GDP in 2012 to 19.1 percent of GDP in 2015, will drive a short-term deficit reduction.
- Federal spending is anticipated to fall to 21.5 percent of GDP, but outlays after 2017 will grow larger, reaching 23 percent of GDP, causing the deficit to reach an estimated 4 percent of GDP by 2023.
- The latest projections include a significant increase in projected deficits through 2023, from $2.3 trillion to $4.6 trillion, due in large part to the enactment of the American Taxpayer Relief Act of 2012, which changed tax and spending laws.
CBO notes that current fiscal policies have led to a roughly 5 percent gap between actual and potential GDP between 2007 and 2017, which will amount to nearly half of the output of the United States last year.
While the unemployment rate will remain near 8 percent, and the rate of inflation and interest rates will remain low this year, the CBO expects an average growth in GDP of 3.6 percent from 2014 through 2018 driven by an upswing in housing construction, rising real estate and stock prices, increasing availability in credit and an unemployment rate that will fall to 5.5 percent by 2017.
- A combined projection from the CBO and the Joint Committee on Taxation (JCT) estimates the net cost of the Affordable Care Act to total $1.165 trillion, despite increased estimates of the number of people who will be uninsured.
- The CBO and JCT also predict higher enrollment and large subsidies for exchanges, driven partly by the anticipated 7 million people who, by 2022, will lose employment-based insurance coverage under the Affordable Care Act.
The CBO believes that real GDP growth will slow for the second half of the coming decade to 2.25 percent because labor force growth will slow down as the baby boomer generation retires. Overall, the outlook predicts slow economic progress after accounting for demographic changes, changing economic conditions and new budget policies.
Source: "The Budget and Economic Outlook: Fiscal Years 2013 to 2023," Congressional Budget Office," Congressional Budget Office February 5, 2013.
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