News Column

Fiscal Tightness Hampers U.S. Economic Growth

August 13, 2013

Isaac Cohen --

national piggy bank
Congressional Budget Office figures show U.S. deficit at lowest level in five years.

Figures released by the nonpartisan Congressional Budget Office this week reveal that spending cuts and increased revenue are drastically reducing the federal budget deficit to the lowest level of the last five years.

So far this year, an increase of 14 percent in revenues, mostly from higher individual income and social security taxes, has made the largest contribution to the reduction in the budget gap.

The federal government is also spending less. Compared to the same period in fiscal year 2012, federal spending decreased 4 percent, mostly due to the mandatory budget cuts agreed to by both Republicans and Democrats in 2011. Defense spending decreased 7 percent this year, for instance, and unemployment benefits fell 24 percent.

In all, for fiscal year 2013, which ends Sept. 30, the projection is that the federal budget deficit will reach $606 billion, down from $975 billion in 2012, an impressive reduction of almost $370 billion.

These figures on fiscal tightening confirm the Federal Reserve's conclusion that fiscal policy is restraining U.S. economic growth.

Princeton professor Alan Blinder estimates that without fiscal restraint, the U.S. economy this year could grow more vigorously, at close to 4 percent, instead of less than 2 percent projected for this year by the International Monetary Fund.


Isaac Cohen is an international analyst and consultant, a commentator on economic and financial issues for CNN en Espaņol TV and radio, and a former director, UNECLAC Washington Office.


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