We have received many questions in recent days about the budgetary and economic implications of the automatic reductions in government spending that are scheduled to occur under current law (in technical terms, a sequestration).
February 2013
CBO estimates that, in the fourth quarter of calendar year 2012, ARRA’s policies raised real (inflation-adjusted) gross domestic product by between 0.1 percent and 0.6 percent compared with what would have occurred otherwise.
In its most recent baseline projections, CBO reduced its estimates of spending for the Medicare and Medicaid programs compared with its estimates in the August 2012 baseline. For the 2013–2022 period, projected spending for those programs is now $382 billion (or 3½ percent) below the agency’s estimates in August 2012.
I testified twice this week about CBO’s latest projections for the economy and the budget—on Tuesday to the Senate Budget Committee, and on Wednesday to the House Budget Committee. In my prepared remarks, I told the Members that our analysis shows that the country continues to face very large economic and budget challenges.
During the past 40 years, federal spending for major means-tested programs and tax credits for low-income households more than tripled as a share of gross domestic product. In 2012, such spending totaled $588 billion.
The federal budget deficit was $295 billion for the first four months of fiscal year 2013, $54 billion less than the shortfall recorded for the same period last year, CBO estimates.
On Tuesday CBO published a new economic forecast in The Budget and Economic Outlook: Fiscal Years 2013-2023.
Yesterday CBO released The Budget and Economic Outlook: Fiscal Years 2013 to 2023. In that report, CBO projects that the federal deficit will drop to $845 billion in 2013—its smallest size since 2008. Even so, under current law annual deficits and federal debt will stay at historically high levels relative to the economy through 2023, and lawmakers face key budgetary decisions this year that could have a substantial effect on that budget outlook.
Under current law, federal debt will stay at historically high levels relative to the economy, CBO projects. Economic growth will be slow in 2013 but pick up thereafter. Even so, the unemployment rate will be above 7.5 percent through 2014.
CBO examined three budgetary paths that would increase or reduce budget deficits relative to current law. Through 2023, those paths would result in considerably different trajectories of federal debt and the nation’s output and income.