US ECONOMIC growth will slow dramatically if tax rises and spending cuts come into effect as planned in 2013, according to new figures from the Congressional Budget Office (CBO).
The expiry of tax cuts originally passed by President George W Bush, the end of a 2 per cent payroll tax holiday and automatic spending cuts agreed last August will reduce growth to just 1.1 per cent in 2013 unless changes are made.
The figures from the bipartisan CBO, which yesterday forecast for 2012 a fourth consecutive trillion-dollar deficit, show how high economic stakes will be when tax policy is hammered out after November’s presidential election.
Under an “alternative fiscal scenario” that assumes most tax cuts will be extended and spending cuts delayed, the CBO’s 2013 growth forecast rises to 2.75 per cent.
US government debt, however, would still rise from around 73 per cent of GDP to 94 per cent by 2022, and deteriorate further as healthcare costs continue to rise.
The CBO estimates that the economy will not produce at its full potential until 2018.
With interest rates expected to remain low, however, the CBO said the government’s interest payments would fall by $538 billion over the next decade. – Copyright The Financial Times Limited 2012
