Analysts: New recession likely in 2013 without budget accord

A new recession is likely if a stalemate over tax and spending cuts continues between Democrats and Republicans, according to fresh, dire projections by the nonpartisan Congressional Budget Office. In its annual summertime report, released today, the budget office says that letting decade-old tax cuts expire and sweeping spending cuts occur in January—which will happen without congressional action—”would lead to economic conditions in 2013 that will probably be considered a recession.” If that happened, the economy would contract by 0.5%, a gloomier projection than the budget office made earlier this year when it envisioned slight growth under that scenario. Unemployment would rise to around 9% by late next year if the standoff persists, the analysts say. The budget office’s latest warning comes during a presidential and congressional election year in which neither President Barack Obama nor congressional Republicans have shown any signs of giving ground in their protracted battle over taxes, spending and the budget. Letting the tax cuts continue and preventing the spending cuts from taking effect would leave a deficit next year of just over $1 trillion. If the reverse occurs, the shortfall would be $641 billion—in effect sucking roughly $400 billion out of a U.S. economy that is already struggling. Today’s report predicts a $1.1 trillion federal deficit for 2012, the fourth straight year the government’s shortfall will exceed $1 trillion.