World and Nation

CBO says economy is projected to remain sluggish

WASHINGTON — The Congressional Budget Office said Tuesday that the economy would remain sluggish, with high unemployment, and that the federal budget deficit would exceed $1 trillion in 2012 for the fourth consecutive year.

The deficit will be $1.1 trillion in the current fiscal year, about $200 billion less than in 2011, and will fall sharply in the next three years as a result of tax increases and spending cuts required by existing law, the agency said in its annual report on the budget and economic outlook.

However, it said, that same combination of higher taxes and caps on spending will crimp economic growth. As a result, it said, the unemployment rate, which was 8.5 percent in December, will climb to 8.9 percent in the last quarter of this year, which includes Election Day, and will rise to 9.2 percent in the final quarter of 2013.

“We have not had a period of such persistently high unemployment since the Depression,” said Douglas W. Elmendorf, director of the Congressional Budget Office.

Elmendorf said the tax increases and spending cuts “would markedly slow the economic recovery” in 2012 and 2013, but could add to the strength of the economy in the long run.

Assuming no change in current law, the budget office said, the economy — measured by the gross domestic product, adjusted for inflation — will grow 2 percent this year and just 1.1 percent in 2013.

The report provided grist for both parties. Republicans said it showed that President Barack Obama’s policies were not working, as evidenced by the high deficit, the rapidly increasing debt and continued high unemployment.

However, Democrats said the report confirmed their argument that new revenue, as well as spending cuts, would be needed to solve the nation’s fiscal problems, and that a stronger economy was the best way to reduce the deficit.

The budget office said the federal government would borrow 30 cents of every dollar it spends this year, assuming a continuation of current law. Spending, it said, will total $3.6 trillion and revenue will total $2.5 trillion.

Tax cuts enacted in 2001 and 2003 under President George W. Bush are scheduled to expire at the end of this year. If Congress allows that to happen and if other laws remain unchanged, the report said, the deficit will fall to $585 billion in 2013 and $345 billion in 2014.

In other words, the report suggests, doing nothing may be the most straightforward way for Congress to slash the deficit, a goal espoused by lawmakers in both parties. Under an alternative scenario, the deficit would still drop below $1 trillion and decline as a share of the economy for several years if Congress extended the Bush tax cuts and reversed other budget-balancing policies.

This year’s expected deficit of $1.1 trillion would amount to 7 percent of the economy, which is nearly 2 percentage points below the share recorded last year “but still higher than any deficit between 1947 and 2008,” the report said.