WASHINGTON—The U.S. economy will slide into recession in 2013 if Congress fails to act to maintain current tax rates and avert deep cuts to federal spending, the Congressional Budget Office said Wednesday in likely the last nonpartisan economic forecast before the November elections.
In its twice annual budgetary outlook, the CBO said U.S. economic growth will decline by 0.5% in 2013, while the unemployment rate will hover around 9% next year. Under current law the budget deficit would improve substantially next year as a result of the scheduled increase in tax rates and reductions in federal spending, shrinking to $641 billion or 4% of gross domestic product.
The picture is slightly less gloomy for fiscal 2012, which ends in about six weeks. The agency said the budget deficit for the fiscal year will stand at $1.1 trillion, a marginal improvement from the $1.2 trillion it forecast in January. The jobless rate will stand at 8.2% at the end of the fiscal year, down from the 8.8% it predicted in January, while economic growth will total 2.1% for the year, up from the 2% expansion it said would occur in its previous forecast.
The CBO acknowledged that its forecast for 2013 was made difficult by the uncertainty on a range of taxation and spending policies. It said that if current tax rates were renewed indefinitely and the slated spending cuts were averted, the budget deficit would hit $1 trillion in fiscal 2013, but economic growth would reach 1.7% while the jobless rate would fall to around 8% by year end.
Currently, federal income-tax rates as well as rates levied on dividends and capital gains are set to increase as the Bush-era tax cuts expire at the end of the year. The estate tax will also increase, a payroll-tax cut will end while expanded federal jobless benefits will also cease. Federal spending will decline by $110 billion in 2013 as a result of a deficit-reduction agreement struck last year.
There remains a considerable divide among the political parties about which portion of those policies to renew and political analysts are forecasting little action to do so before the end of the year.
Source: Corie Bowles
