CBO: Stopping sequester would boost economy but hurt longterm output

Congress could boost the economy by ending the automatic spending cuts known as the sequester, but such a move would saddle the federal government with more debt and eventually lead to negative impacts, according to a nonpartisan report released on Thursday.

The Congressional Budget Office estimated that canceling the 10-year austerity measure would increase federal spending by $104 billion through fiscal year 2014, driving up economic growth by .7 percent and adding 900,000 jobs over the same period. But those gains would come at a cost, the report said.

“Although output would be greater and employment higher in the next few years if the spending reductions under current law were reversed, that policy would lead to greater federal debt, which would eventually reduce the nation’s output and income below what would occur under current law,” the CBO said in a letter to Rep. Chris Van Hollen (D-Md.), who requested the analysis.

DC
(Andrew Harrer/Bloomberg)

The CBO also said that increasing federal debt would diminish Congress’s ability to respond to unexpected future challenges and increase the risk of a fiscal crisis “in which the government would lose the ability to borrow money at affordable interest rates.”

The report comes as a mixed bag for Democrats and Republicans, fueling both parties’ arguments for what should be done about the sequester moving forward.

GOP lawmakers have minimized the impacts of the cuts and demanded that the spending cap stay in place to keep taxes and the national debt in check. Democrats have decried the human and economic effects while calling for a repeal.

The sequester stalemate, which has shown virtually no signs of subsiding, is indicative of congressional budget talks in general over the past few years. Negotiations this year have been largely unsuccessful, with the two parties making little progress toward closing a $91 billion gap between their budget proposals.

Meanwhile, Congress has not passed a comprehensive budget in nearly four years.

To connect with Josh Hicks, follow his Twitter feed, friend his Facebook page or e-mail josh.hicks@washpost.comFor more federal news, visit The Federal Eye, The Fed Page and Post Politics. E-mail federalworker@washpost.com with news tips and other suggestions.

Josh Hicks covers the federal government and anchors the Federal Eye blog. He reported for newspapers in the Detroit and Seattle suburbs before joining the Post as a contributor to Glenn Kessler’s Fact Checker blog in 2011.
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Josh Hicks · July 25, 2013