Slow growth reflects a combination of ongoing improvement in underlying economic factors and fiscal tightening that has already begun or is scheduled to occur -- including the expiration of a 2 percentage-point cut in the Social Security payroll tax, an increase in tax rates on income above certain thresholds, and scheduled automatic reductions in federal spending. That subdued economic growth will limit businesses' need to hire additional workers, thereby causing the unemployment rate to stay near 8 percent this year, CBO projects.
But the CBO doesn't think the government should ignore rising debt, either. In its report, the agency projects that the national debt will amount to 77 percent of GDP by 2023 and warns of the potential for "serious negative consequences," including lower wages, less political flexibility and a higher risk of a fiscal crisis.
Nobel Prize-winning economist Paul Krugman wrote on his blog Wednesday that the CBO's report proves that "the numbers continue to refuse to justify panic." He wrote that the CBO projects a higher debt largely because of its assumption that interest rates on government bonds will rise. However, he notes, that may prove to be wrong because "if recovery falters, it's also more or less certain that interest rates will stay low, offsetting much of the deficit impact."
Meanwhile, more austerity is on the way. Automatic spending cuts are scheduled to occur on March 1, which the Economic Policy Institute projects would eliminate 689,000 jobs in 2013. And Congress seems to be in no hurry to stop these spending cuts, The Huffington Post has reported.
(Hat tip: Talking Points Memo.)
Earlier on HuffPost:
The Deficit Has Grown Mostly Because Of The Recession
The deficit has ballooned not because of specific spending measures, but <a href="http://research.stlouisfed.org/fred2/graph/?s[id]=FYFSD" target="_hplink">because of the recession</a>. <a href="http://www.whitehouse.gov/omb/budget/Historicals" target="_hplink">The deficit more than doubled</a> between 2008 and 2009, as the economy was in free fall, since laid-off workers paid less in taxes and needed more benefits. The deficit then shrank in 2010 and 2011.
The Stimulus Cost Much Less Than Bush's Wars, Tax Cuts
Republicans frequently have blamed <a href="http://projects.nytimes.com/44th_president/stimulus" target="_hplink">the $787 billion stimulus</a> for the national debt, but, when all government spending is taken into account, the stimulus frankly wasn't that big. In contrast, <a href="http://www.huffingtonpost.com/2011/06/29/cost-of-war-iraq-afghanistan_n_887084.html" target="_hplink">the U.S. will have spent nearly $4 trillion</a> on wars in the Middle East by the time those conflicts end, according to a recent report by Brown University. <a href="http://www.washingtonpost.com/blogs/fact-checker/post/revisiting-the-cost-of-the-bush-tax-cuts/2011/05/09/AFxTFtbG_blog.html" target="_hplink">The Bush tax cuts have cost nearly $1.3 trillion</a> over 10 years.
The Deficit Grew Under George W. Bush
When George W. Bush took office, <a href="http://www.whitehouse.gov/omb/budget/Historicals" target="_hplink">the federal government was running a surplus</a> of $86 billion. When he left, that had turned into a $642 billion deficit.
The Deficit Is Shrinking
<a href="http://www.whitehouse.gov/omb/budget/Historicals" target="_hplink">Last year's federal budget deficit</a> was 12 percent lower than in 2009, according to the Office of Management and Budget.<a href="http://www.whitehouse.gov/omb/budget/Historicals" target="_hplink">The deficit is projected to shrink</a> even more over the next several years.
Investors Are Paying Us To Borrow Money
<a href="http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield" target="_hplink">The interest rate on 10-year Treasury bonds</a> is <em>negative</em>, according to the Treasury Department. Investors are even paying us for 30-year Treasury bonds, when adjusted for inflation.
Investors Are Not Running Away
<a href="http://www.businessinsider.com/niall-ferguson-has-been-wrong-on-economics-2012-8" target="_hplink">Conservative commentators</a> have been warning for years that investors will run away from Treasury bonds because of the national debt. So far it's not happening. <a href="http://www.huffingtonpost.com/2012/05/30/treasury-yield-record-low_n_1555975.html" target="_hplink">Interest rates on Treasury bonds</a> continue to hover at historic lows.
Health Care Reform Reduces The Deficit
<a href="http://www.huffingtonpost.com/2012/09/04/republican-platform-2012-factual-mistakes_n_1840795.html#slide=1461142" target="_hplink">Republicans have blasted the Affordable Care Act</a> as "budget-busting." But <a href="http://www.huffingtonpost.com/2012/09/04/republican-platform-2012-factual-mistakes_n_1840795.html#slide=1461142" target="_hplink">health care reform actually reduces the deficit</a>, according to the Congressional Budget Office.
The U.S. Is Borrowing Less From China
<a href="http://krugman.blogs.nytimes.com/2012/08/30/fear-of-china-syndrome/" target="_hplink">The U.S. government is borrowing much less from foreign countries</a> than before the recession, according to government data cited by Paul Krugman. That is because the U.S. private sector is financing our bigger deficits.
We Spend A Lot On Defense
<a href="http://www.cbpp.org/cms/index.cfm?fa=view&id=1258" target="_hplink">Defense spending constituted 20 percent</a> of federal spending last year, or $718 billion, according to the Center on Budget and Policy Priorities. This adds up to <a href="https://twitter.com/AJInsight/statuses/241269134996959234" target="_hplink">41 percent of the world's defense spending</a>, according to Bloomberg TV anchor Adam Johnson. <a href="http://www.huffingtonpost.com/2012/07/19/mitt-romney-military-budget_n_1687601.html" target="_hplink">Mitt Romney has vowed</a> to not cut defense spending if elected president.
We Spend A Lot On Health Care
<a href="http://www.cbpp.org/cms/index.cfm?fa=view&id=1258" target="_hplink">Health insurance, including Medicare and Medicaid, constituted 21 percent</a> of federal spending last year. In contrast, education constituted 2 percent of federal spending. Meanwhile, <a href="http://www.miamiherald.com/2012/08/19/2956609/middle-aged-blues-over-paul-ryans.html" target="_hplink">Mitt Romney and Paul Ryan have promised not to change Medicare</a> for Americans age 55 and older.
Republicans May Want Large Deficits For Now
<a href="http://www.businessinsider.com/corporate-taxes-deficits-and-labor-vs-capital-during-reagans-first-term-2012-7" target="_hplink">The federal budget deficit ballooned</a> under Ronald Reagan, and that may be just the way Republicans like it. <a href="http://www.forbes.com/2010/05/06/tax-cuts-republicans-starve-the-beast-columnists-bruce-bartlett.html" target="_hplink">Some Republican thinkers</a> have proposed <a href="http://www.nytimes.com/2010/02/22/opinion/22krugman.html" target="_hplink">"starving the beast"</a>: that is, cutting taxes in order to use larger deficits to justify spending cuts later. Since Republicans ultimately want lower taxes and a smaller government, what better way is there to cut spending than to make it look urgent and necessary?