US deficit to shrink slightly, growth to slow: CBO

The CBO analysis, which will feed into Congress' bitter debate over deficit-reduction plans, assumes that US$85 billion in automatic spending cuts will launch as scheduled on March 1.

It said the fiscal tightening from higher taxes and this lower spending will slow economic growth to an anemic 1.4 percent by the end of 2013, causing the unemployment rate to edge back higher.

In the New Year's deal to avert the fiscal cliff, tax rates on income above US$450,000 for couples were allowed to return to their pre-2001 levels. But the automatic spending cuts were only delayed for two months until March 1.

The economy will start to rebound in 2014 and fill federal coffers at a faster pace, according to the nonpartisan congressional budget referee.

Even if Congress takes no further actions to cut spending or raise tax revenue, deficits will continue to shrink, reaching US$616 billion in fiscal 2014 and US$430 billion in fiscal 2015. The 2015 gap would be equivalent to 2.4 percent of U.S. gross domestic product at that time, a level that many economists view as sustainable.

But deficits rise steadily from middecade, nearing US$1 trillion again by 2023, according to the forecast. The 10-year cumulative deficit is forecast at US$6.958 trillion.

“Deficits are projected to increase later in the coming decade, however, because of the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt,” the CBO said in the report.

CBO warned that U.S. debt held by the public also would continue to mount, reaching 77 percent of GDP by 2023 and rising further. This will limit lawmakers' flexibility in dealing with economic slowdowns and other challenges.

“Such a large debt would increase the risk of a financial crisis, during which investors would lose so much confidence in the government's ability to manage its budget that the government would be unable to borrow at affordable rates,” the CBO said.

SHARE CLOSE
Blogger		Google+
Live Journal		Plurk
Stumble Upon

Tweet

	PREVIOUS ARTICLE
	BOE to hold fire as new Canadian chief speaks

NEXT ARTICLE
Beijing OKs sweeping tax reforms to tackle inequality

Write a Comment

Terms

Enter your comments - 3000 characters max

Type in image code

 Receive China Post promos
 Respond to this email

Submit