In a report released Tuesday, the non-partisan budget office, which advises Congress, said if "current laws that govern federal taxes and spending do not change," the gross domestic product would rise 1.4 percent in 2013, when adjusted for inflation. The report said the relatively slow growth would be a result of the end of the payroll tax break and the increase in income tax rates provided for under the American Taxpayer Relief Act of 2012, which raised rates on individual income of more than $400,000 per year and household income above $450,000 per year.
The CBO said economic growth will accelerate after this year, leading to more hiring but higher inflation and interest rates, but the economy will not return to its "potential (or maximum sustainable) level" until 2017.
Emphasizing that its projections are based on no change in current law on taxation and spending, the report projects unemployment will remain above 7.5 percent through 2014, which would be the sixth consecutive year with unemployment above 7.5 percent, "the longest such period in the past 70 years."
The CBO projected the budget deficit would shrink to 2.4 percent of the gross domestic product by 2015, a drop from 5.3 percent in 2013, when the deficit is expected to shrink under $1 trillion for the first time in five years. However, the deficit is expected to remain high "because of the pressures of an aging population, rising healthcare costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt."
The CBO said if current laws remain intact -- and it is not anticipating they will or will not -- then the debt will reach 77 percent of the country's gross domestic product by 2023.
"Such high and rising debt," the CBO said, "would have serious negative consequences."
As interest rates rise with further recovery, interest payments on the federal debt will rise as well, and the CBO said huge debt levels would "increase the risk of a fiscal crisis."
"Investors would lose so much confidence in the government's ability to manage its budget that the government would be unable to borrow at affordable rates," the CBO said.