We have received many questions in recent days about the budgetary and economic implications of the automatic reductions in government spending that are scheduled to occur under current law (in technical terms, a sequestration).
CBO estimates that, in the fourth quarter of calendar year 2012, ARRA’s policies raised real (inflation-adjusted) gross domestic product by between 0.1 percent and 0.6 percent compared with what would have occurred otherwise.
During the past 40 years, federal spending for major means-tested programs and tax credits for low-income households more than tripled as a share of gross domestic product. In 2012, such spending totaled $588 billion.
Under current law, federal debt will stay at historically high levels relative to the economy, CBO projects. Economic growth will be slow in 2013 but pick up thereafter. Even so, the unemployment rate will be above 7.5 percent through 2014.
CBO examined three budgetary paths that would increase or reduce budget deficits relative to current law. Through 2023, those paths would result in considerably different trajectories of federal debt and the nation’s output and income.