The pace of U.S. economic growth will slow somewhat through 2008, and an economic rebound is likelyto begin early in 2009
as the housing and financial sectors improve, says a Congressional Budget Officeforecast. Peter Orszag, director of the nonpartisan Congressional Budget Office (CBO), said in testimony before several congressional budget and finance committees that
the current economic weakness wascreated by tight credit, a housing crisis and rising oil prices.
The CBO provides Congress at least twoeconomic outlook forecasts annually. "The state of the economy is particularly uncertain at the moment. The pace of economic growth slowed in 2007, and there are strong indications that it will slacken further in2008," Orszag said January 24 in congressional testimony. "In CBO's view, the ongoing problems in thehousing and financial markets and the high price of oil will curb spending by households and businesses thisyear and trim the growth of [the gross domestic product]." A nation's gross domestic product (GDP) is thetotal market value of all final goods and services produced by a nation. It generally includes four components-- consumer spending, investment, government spending and exports and imports
. For 2008
, CBO estimatesthe
U.S. GDP to reach approximately $13.67 trillion and will rise further to $14.2 trillion in 2009.
b- narrow tax incentives hurt businesses and stop economic growthChris Edwards
, Director of Tax Policy Studies, Cato Institute May 24
Energy Efficiency: CanTax Incentives Reduce Consumption?Mr. Chairman and members of the committee, thank you for inviting me to testify today regarding energyefficiency and the federal tax code. http://www.cato.org/testimony/ct-ce05242007.htmlAdditional tax incentives, such as tax credits, probably could reduce U.S. energy consumption modestly.
narrow incentives complicate the tax code, create distortions that reduce growth, and movedown the slippery slope of widespread social engineering through the tax system.
On the other hand,
Congress should reform tax provisions that hinder new investments in energyproduction and conservation. Current business depreciation rules for energy and conservationinvestments are unfavorable compared to the rules in other countries. Congress should reform thoserules
, and it should pursue broader tax reforms to spur more rapid replacement of older structures andequipment with newer, more energy efficient infrastructure throughout the economy.Policymakers have long considered major reforms to the federal tax system. Some favor a broad-basedconsumption tax, while others favor a broad-based (or Haig-Simons) income tax. The difference between thetwo is the treatment of savings and investment. Consumption taxes apply one layer of tax to savings andinvestment, while income taxes apply two layers. The current federal "income tax" is a hybrid between thetwo systems.Reforms to move the current tax code toward a consumption-based system dovetail with the goals of thoseconcerned about America's energy future.
A consumption tax would limit current consumption, includingenergy consumption, while removing tax barriers to investment—including investment in energyproduction, energy technologies, and energy conservation.
As discussed below, more favorabledepreciation rules would be an important step in a consumption tax direction.