Deferring on budget no longer an option, CBO says

If the government continues pumping cash into the economy over the next year, the unemployment rate will average 8 percent in 2013.

But the short-term pain is worse if the money stops altogether: Joblessness would peak above 9 percent and remain above 8 percent at least through the end of 2014.

For the past four years, as the economy has remained sluggish, all parties in Washington have agreed to put off a fiscal tightening in favor of immediate efforts to try to restore the economy.

The economy, however, has not responded well, and the fiscal problems have only deepened. CBO said the important yardstick for government debt has doubled over the past five years, from 36 percent to 73 percent of gross domestic product.

Now, the federal government faces what has become known as the “fiscal cliff” — the end of the Bush-era tax cuts and the automatic triggering of scheduled spending cuts called for in current law.

If Congress allows the tax cuts to end, the deficit would be cut to $641 billion in fiscal year 2013, or 4 percent of GDP, in what would be the biggest one-year drop since 1969.

But if Congress cancels the spending cuts and extends all of the tax cuts, the deficit would top $1 trillion for the fifth straight year.

Republicans are pushing for an extension of all of those tax cuts and for canceling the spending cuts to defense, while Democrats want to see an extension of most of the Bush tax cuts and are conflicted on how to approach the spending side.

The major difference in tax plans is that Mr. Obama has called for couples earning at least $250,000, and individuals earning $200,000 or more, to see their income-tax rates rise to pre-Bush levels.

The CBO said the difference between the GOP plan and Mr. Obama’s plan amounts to $42 billion in extra revenue next year, and $824 billion over the next decade.

Even if Congress extends the tax cuts and cancels spending cuts, the CBO projects, the economy will grow at only 1.7 percent in 2013, and the unemployment rate will hit 8.7 percent at some point, and average 8 percent for the year.

In 2013, that difference amounts to about 2 million more jobs if Congress keeps the cash flowing, Mr. Elmendorf said.

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