CBO: Under Current Law, Unemployment Will Rise Next Year to 9.1%

September 6, 2012

The Congressional Budget Office (CBO) is projecting that if changes in federal taxing-and-spending policies already enacted and set to take effect at the beginning of next year do in fact take place, the unemployment rate will climb to 9.1 percent.

In a report released on Aug. 22, An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022, CBO's baseline projections show that by the fourth quarter of 2013 the national unemployment rate will be 9.1 percent.

The estimate is based on the assumptions that the automatic caps on federal spending mandated under the Budget Control Act will take effect and that the extensions of the Bush-era tax rates enacted in 2010 will also be allowed to expires as they are set to do after Dec. 31.

CBO also provides projections for an "alternative fiscal scenario," in which the Bush tax rates are extended indefinitely, automatic spending cuts are averted and either the Medicare "doc fix" is reinstated or the current Medicare payment rates are extended.

Even in this scenario, which CBO calls "unsustainable," the unemployment rate would still be about 8 percent by the end of 2013.

Deficits would be much higher under the alternative scenario as well, averaging about 5 percent of GDP rather than the projected 1 percent if the laws stay the same.

"The persistence of large budget deficits and rapidly escalating federal debt" would "hinder national saving and investment," CBO said.

"Ultimately, the policies assumed in the alternative fiscal scenario would lead to a level of federal debt that would be unsustainable from both a budgetary and an economic perspective," the report concluded.

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