Published for economics21.org, June 11th, 2012
The Congressional Budget Office (CBO) recently released two important reports on the federal budget. One analyzes the short term, the other the long term.
The first report explains what is projected to happen, both to the federal budget and to the larger economy, in the near term due to year-end expirations of various tax and spending policies.
The other report projects what will happen to the federal budget over the upcoming decades.
Both reports analyze two scenarios; first, if certain provisions of current law (raising taxes and cutting spending) are upheld, and second, if they are legislatively overridden.
The findings of CBO’s gloomy long-term report come as no surprise. Over the most recent four years, the U.S. government has engaged in continued massive deficit spending on a scale not seen since World War II. CBO finds that the continuation of such policies in future years will lead to federal fiscal ruin and severe economic hardship.
The short-term report is more nuanced. CBO finds that continued deficit-spending will increase economic growth in the near-term but weaken growth over the long term.