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it was sequestration AND the changes "in certain tax provisions" AND 1/4% attributed to "other" factors that would cause the 1.5% in depressed GDP that Spence is referring to
february 28, 2013
The fiscal tightening in 2013 is mostly a result of two developments: the expiration of certain tax policies that will lead to an increase in tax revenue (relative to 2012, payroll tax rates are higher and tax rates on income above certain thresholds have increased); and the automatic spending reductions scheduled to occur under current law (the sequestration). In the absence of those policies, real GDP would grow about 1¼ percentage points faster between the fourth quarter of last year and the fourth quarter of this year, CBO estimates. (The remaining ¼ percentage point reduction in economic growth due to fiscal tightening comes from other, smaller changes in spending and taxes.) The expiration of those tax provisions and the automatic spending cuts account for about equal portions of that 1¼-percentage-point effect. The spending changes have a smaller budgetary impact than the tax changes, but they affect GDP by a larger amount per dollar of budgetary cost.
Nevertheless, although CBO expects that reducing the amount of fiscal tightening this year would strengthen the economy in the short term, the resulting increase in federal borrowing would weaken the economy in the longer term unless other changes in spending or tax policy were made to offset that additional borrowing.
we live from short term mirage to short term mirage digging the hole deeper and deeper
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