CBO: dreary outlook for 2013 economy

The first half of 2013 may be marked by a significant recession if a forecast by Congressional Budget Office analysts remains true.

According to the report, fiscal tightening would trigger a slide into what “will probably be considered a recession.”

The report said if current plans to decrease governmental spending and increase taxes continue as scheduled, the economy will contract, shedding jobs and lowering gross domestic product by 0.5 percent in 2013. GDP is projected to start recovering only at next year’s end.

The nonpartisan budget office has produced economic and budgetary analysis since its founding in 1974.

The projection showed that the public at fiscal year’s end, Sept. 30, would hold 73 percent of the federal debt. This marks the highest level since 1950.

The CBO report predicts a rise of the unemployment rate to 9.1 percent by late next year, an increase of about 1 percent from recent rates this year.

And while painful in the short term, this tightening would reduce the national deficit by at least $487 billion in 2013, putting the United States on what the CBO called a sustainable path.

In effect, U.S. deficit would lessen to a projected $641 billion, down from this year’s $1.128 trillion, the fourth year the deficit has topped $1 trillion.

Kathy Parkison, professor of economics at IU-Kokomo, said the U.S. has spent its way into the current situation.

“You’ve got two choices to fund things: you can pay for things now, or pay for them later,” Parkison said. “We’ve followed the latter model.”

Parkison said she hopes the time is now, adding that both sides of the aisle will need to work together.

“Personally, I hope our politicians take it seriously,” Parkison said. “We’ve kicked the can down the road long enough. It’s time to make some hard choices.”

Looking to 2022, the report outlines projections that show the GDP initially declining, but rising in the long term. According to the report, unemployment would follow the same pattern as the decade progresses.

These projections assume current laws will expire or go into effect without
intervention.

As of now, provisions of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 will expire, causing taxes to rise.

Emergency unemployment benefit extensions, too, will expire. The spending restraint procedures of the Budget Control Act of 2011 will go into effect.

However, government leaders don’t have to continue with the laws as planned.

They have the option to scale back tax hikes and spending cuts or reverse the process entirely and cut taxes while increasing spending in an attempt to kick-start the economy. The latter option, of course, would deepen debts, but it’s a risk the government has taken before.

Kevin Brinegar, president and CEO of the Indiana Chamber of Commerce, said he believes the report advocates for intervention in a thoughtful, surgical way, instead of across-the-board spending cuts and tax increases.

“We need to get people in Congress and the White House who understand the severity of this problem and the implications of the CBO report, ready to go in there, roll up their sleeves and make some hard choices,” Brinegar said. “We need people who are concerned about Americans’ future more than their own political future.”

He said reigning in years of spending by both Democrats and Republicans is a necessity to restore balance in the country.

“We have to get our revenues and spending at the federal level in line, and right now, they’re way out of line,” Brinegar said. “Sometime very soon, we have to take our medicine. The country has been spending far beyond our means for far too long.”

Regardless of the action taken, the semiannual report did offer some immediate promising news. Economic growth should continue through this year, and unemployment shouldn’t rise further.

But 2013 may be more interesting, Parkison said.

“(If) you start cutting the federal budget to the extent it needs to be cut, everyone will feel the effect,” Parkison said.