The economy will grow slowly in 2013 and more rapidly next year, with unemployment projected to stay high, according to the report.
This year's growth is being hampered by a tax increase enacted in January and by automatic spending cuts scheduled to take effect this spring. CBO projects the economy will grow by just 1.4 percent this year but recover to 3.4 percent next year.
Unemployment is projected to stay above 7.5 percent through next year. That would be the sixth straight year above that level, the longest period of such high unemployment in 70 years, the report said.
Without the government's fiscal tightening, which includes the expiration of Obama's two-year, 2 percentage point cut in payroll taxes and the imposition of the automatic spending cuts, economic growth would be about 1.5 percentage points higher this year, the report said. However, CBO warns that future growth would be constrained if the government doesn't reduce future deficits.
The report warns that actual deficits could easily be higher since CBO is required to assume Congress sticks to the letter of the law.
The report says that health spending will continue to grow as Obama's health care law takes full effect. CBO said spending on major health care programs will surpass Social Security in 2014, as Obama's push to cover the uninsured goes into high gear. Major health care programs include Medicare, Medicaid, children's health insurance and the new subsidies to help uninsured Americans get coverage.
Although health care costs remain a major problem for the budget, a slowdown in the growth of medical spending is helping take away some of the immediate pressure. In 2012, federal spending for Medicare and Medicaid was about 5 percent below what CBO had projected only two years earlier. As a result, the agency has trimmed its long-range cost projections.
CBO also estimates that fewer uninsured people will get coverage under the health care overhaul — about 4 million fewer Americans. And about 7 million fewer will be covered by job-based health plans.
Tuesday's estimate says the health care law will reduce the number of uninsured by about 27 million people in 2022, as compared to last year's estimate of around 30 million fewer uninsured. CBO said it expects some people will be slow to take the new coverage when it becomes available in 2014, but that demand will pick up within a few years.
CBO also said it expects more employers to get out of the business of providing health insurance, particularly for low-wage workers, and instead pay fines to the government. Although employer-provided coverage will remain the mainstay for most employees, in 2022 there will be 7 million fewer covered by job based plans, the agency said.