CBO report on unemployment: economy will still stall even if it is President Perry or Romney

House Speaker John Boehner predictably blasted President Obama for the dismal report, saying:

“The CBO update is further confirmation of the need for the president to abandon his reliance on short-term fixes and ‘stimulus’ spending gimmicks, and work with us to remove government barriers that are standing in the way of long-term job growth."

The CBO report says growth will continue to be stagnant the next couple of years, writing:

Taking those factors into account, CBO projects that real GDP will increase at a modest pace, on average, through 2013—driven by continued strength in business invest-ment, modest increases in consumer spending, and expansions in net exports and residential investment (seeSummary Table 2 on pagexiii). The slow growth in output will generate only a moderate decline in the unemployment rate, which is projected to stay above 8percent through 2013. With the amount of excess productive capacity in the economy expected to remain substantial, CBO projects that the inflation rate—as measured by the price index for personal consumption.

The CBO does project the deficit to decline in future years (yay, that's a good thing everybody, right?) because "revenues will climb sharply under current law," referring to the fact that the Bush tax cuts were extended for everyone last December until the end of 2012.

Now, we've all seen the reluctance (if not flat out intransigence) amongst Republicans in D.C. when it comes to raising taxes, but the question needs to be elevated at a much higher level by members of the media about what is more relevant: reducing the federal deficit, supposedly the issue of our lifetime, or bringing back the tax code to what it was during Bill Clinton's reign in office?

Meanwhile, the Washington Post's Harold Meyerson reports that there is one tax actually that the GOP has no problem see go up - that would be the payroll tax, scheduled to rise January 1 from 6.2 percent from 4.2 percent of your paycheck, a level established for one year in December’s budget deal at Democrats’ insistence. But Meyerson writes, unlike the Bush tax cuts or the capital gains tax, the payroll tax chiefly hits the middle class and the working poor.

This tax-Joe-Six-Pack mania doesn’t end with the Journal. While President Obama has made clear that he supports extending the lower 4.2 percent payroll tax rate for another year, to keep the economy from contracting further, congressional Republicans have made their opposition equally clear. “I don’t think that’s a good idea,” said Dave Camp (R-Mich.), chairman of the tax-writing House Ways and Means Committee. Camp complained that it would push the deficit higher. House Budget Committee Chairman Paul Ryan (R-Wis.), the man who’d have us scrap Medicare, concurred. “It would simply exacerbate our debt problems,” he said on Fox News Sunday this month.

This concern for the debt, touching though it may be, didn’t keep Republicans from enacting two waves of tax cuts under George W. Bush. It hasn’t kept them from opposing our current president’s proposal to restore the Clinton-era tax rates on the wealthy. But when we’re talking about taxes on the majority of Americans, those who work for a living and don’t make six-figure incomes, the Republican brain lobe devoted to debt reduction through tax increases goes abuzz with synaptic frenzy.

  • Doug Elmandorf with the CBO

As President Obama struggles at the polls while the economy continues to slag, some economists have been questioning how much this president (or any other) could actually do to jump start an economy that was in horrible shape when he inherited the office in January in 2009, and despite some growth, now appears to be dangerously close to dipping into a second recession in the past two years.

Which is why the new report by the Congressional Budget Office is an eye opener. The CBO expects employment to expand slowly, not getting lower than 8 percent unemployment well into what could be the second year of a Mitt Romney or Rick Perry administration.

The unemployment rate is projected to fall from 9.1 per-cent in the second quarter of 2011 to 8.9 percent in the fourth quarter of the year and to 8.5 percent in the fourth quarter of 2012—and then to remain above 8 percent until 2014.

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