- The Washington Times - Thursday, January 14, 2010

The $787 billion stimulus package enacted by Congress in February will continue to bolster the U.S. economy over the next several years but its impact will begin to diminish in about six months, the nonpartisan Congressional Budget Office said Thursday.

The CBO report also found that after mid-2010, the package of government spending and tax cuts will continue to help support the economic demand but will have a negative impact on future growth.

The report said that roughly one-fifth of the money and cuts in President Obama’s $787 billion stimulus program had been spent through September 2009 and that the package will contribute $400 billion to the economy this year, more than $100 billion in 2011, then smaller amounts in the years after that.

“The economic effect of the [stimulus] … will peak in the first half of 2010,” the report states. “After that point, the stimulus will still add to demand but by smaller amounts.”

The report also reaffirmed the CBO’s August forecast that U.S. unemployment will not fall below 8 percent again until 2012, despite the jolt provided by the stimulus spending. The rate is now 10 percent, the highest since World War II.

CBO analysts said that further cuts in payroll taxes for firms that hire new workers and increasing unemployment benefits would have the quickest impact in boosting economic and job growth through 2011.

But the report also warned that the impact of the government’s efforts to bolster the economy in the short term could endanger the country’s long-term fiscal health if rising budget deficits are not addressed.

“Despite the potential economic benefits in the short run, such actions would add to the already large projected budget deficits. Unless offsetting actions were taken to reverse the accumulation of additional government debt, future incomes would tend to be lower than they otherwise would have been,” the report said.

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