CBO warns of U.S. falling off 'fiscal cliff'
A new government study says that allowing Bush-era tax cuts to expire and a scheduled round of automatic spending cuts to take effect would probably throw the economy into a recession. The Congressional Budget Office report says that the economy would shrink by 1.3% in the first half of next year if the government is allowed to fall off this "fiscal cliff" on Jan. 1—and that the higher tax rates and more than $100 billion in automatic cuts to the Pentagon and domestic agencies are kept in place. There's common agreement that lawmakers will act either late this year or early next year to head off the dramatic shift in the government's financial situation. But if they were left in place, CBO says, it would wring hundreds of billions of dollars from the budget deficit that would "represent an additional drag on the weak economic expansion." Should the economy contract by 1.3% in the first half of 2013, as CBO predicts, it would meet the traditional definition of a recession, which is when the economy shrinks for two consecutive quarters. The economy would rebound at a 2.3% growth rate in the second half of the year, however, under CBO projections. The CBO study came as Capitol Hill is hopelessly gridlocked over spending and taxes in advance of the fall elections. The White House and top Democrats, like Senate Majority Leader Harry Reid of Nevada, say they will refuse to act on the expiring tax cuts and automatic spending cuts unless Republicans show greater flexibility on raising taxes. Check out an overview of the CBO report and access it in its entirety at the CBO website here.
comments powered by Disqus
James "Jim" Beard
Wall Street Adapts to New Regulatory Regime