The Congressional Budget Office (CBO) has released its budget and economic outlook report for fiscal years 2013 through 2023. Although the report predicts that projected spending cuts and tax increases will slow economic growth, the news is not all bad. For the first time in five years, the government’s deficit could drop below $1 trillion.
First, the good news: The CBO has projected the deficit for 2013 to be $845 billion, which is the smallest that it has been since 2008, and roughly half of what it was in 2009.
In addition, the economy is expected to grow by 1.4 percent. This will mean more jobs for college graduates and those skilled in high-demand occupations such as healthcare and finance.
The CBO also anticipates a 7.9 percent unemployment rate.
However, in spite of these factors, economic growth may still be stagnant in 2013.
For one reason, the 1.4 percent growth rate represents a decline from last year’s rate of 1.9 percent. In addition, if unemployment remains above 7.5 percent this year and in 2014, it will mark the first time in 70 years that the country has sustained a six-year jobless rate of at least 7.5 percent.
The payroll tax cut expiration and the implementation of higher tax rates for the country’s wealthy citizens is also expected to contribute to the slow growth rate.
There is also uncertainty regarding many budget issues that are in limbo. For example, the CBO’s projections are based on an 8 percent reduction in defense budget spending and a 5 to 6 percent reduction in non-defense spending. However, if these spending cuts are cancelled or replaced with other measures, the deficit could increase beyond the office’s projections.
Another factor to consider is that federal agencies are currently operating under the Continuing Appropriations Resolution 2013, which is set to expire at the end of March. If no other appropriations are implemented at that time, this will also significantly affect the CBO’s projections.