Tax increases and spending cuts scheduled to take effect in January 2013 would slow the economy and raise unemployment next year unless policy makers strike a deal to keep those changes from kicking in or offset their impact, the Congressional Budget Office warned.

But while such an agreement would boost the economy in the short term, it also would expand the federal budget deficit over time if not combined with other policy changes, the nonpartisan CBO said.

Policy makers will have to decide soon how to handle the near-term economic strains as well as the future problems caused by rising government debt, CBO Director Douglas Elmendorf said.

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