CBO: Deficit Cuts Are About To Hurt The Economy

The U.S. economy will suffer over the next few years as a result of fiscal austerity measures including the recent spate of spending cuts, according to the Congressional Budget Office’s latest forecast issued Tuesday.

Economic growth and the employment rate will be reduced for many years to come as a result of the August debt limit law’s steep $2.4 trillion in spending cuts and expiration of expiring tax provisions including the Bush-era tax cuts.

To illustrate this point, CBO made separate projections pegged to two baselines — current law, in which the spending cuts and tax increases go into effect, and an alternative fiscal scenario in which these fiscal policy changes are voided.

Without the austerity measures, deficits are higher, but real GDP growth is projected to be as much as 0.8 percent higher this year and up to 2.9 percent higher next year, when the debt limit law’s sequestration cuts kick in and the Bush-era tax breaks expire. The baselines even out after a decade but the near term hit to the economy is salient.