An interesting quote in their analysis. "Under current law, federal tax and spending policies will impose substantial restraint on the economy in 2013, so CBO projects that economic growth will slow that year before picking up again, averaging 3.6 percent per year from 2013 through 2016." What tax policies are they talking about? If we go down they tell us what expires at the end of 2012 having a chilling affect on our economy. They are:
Certain provisions of the 2010 tax act, including extensions of lower rates and expanded credits and deductions originally enacted in the Economic Growth Tax Relief Reconciliation Act of 2001, the Jobs and Growth Tax Relief Reconciliation Act of 2003, and the American Recovery and Reinvestment Act (ARRA), expire at the end of 2012.
These bills that if allowed to expire would have such a chilling affect on our fragile recovery are known as the Bush tax cuts. The CBO goes on to talk about how much the deficit will be cut by the sunset of these economy boosters. They don't seem to factor in the increase in tax revenue from a better economy. We know from history that what really will close the deficit is the revenue generated by a robust economy. Like the typical bean counter the CBO acts like everything happens in a vacuum. These types of bean counters miss that a loss over on this balance sheet can produce even larger gains on that balance sheet. They do seem to know that this would halt our recovery for a year.
Where the overall balance of both balance sheets fall is anyones guess. I would not recommend doing anything that would chill the economy until it was churning like gang busters. Until then the chill could have a long term affect not short like the CBO is predicting. Once the economy has become strong these stimuli could be halted with little affect on the economy. It is all about timing if you want to do major things like health care reform or reforming tax law. Done at the right time the economy hardly notices the change but done at the wrong time they have a devastating effect on the economy. These concepts are not hard to understand and any business person should see them as obvious. We need to put more good businessmen in Washington. Maybe the economy would always run smooth with people who understand the different affects government policies have on the economy when done at the right and wrong time for action.
An important thing to understand about the CBO. They have to operate using whatever assumptions that congress gives them. If congress told them the moon was made of blue cheese the CBO would say there was no need to bring food for the astronauts that are going to be on the moon for a 2 week mission. They don't have a choice in the matter when it comes to using common sense.