It’s the scenario that has been spooking employers and investors and slowing the U.S. economy: Congress and the White House fail to strike a budget deal by New Year’s Eve. Their stalemate triggers sharp tax increases and spending cuts. Those measures shrink consumer spending, stifle job growth, topple stock prices, and push the economy off a “fiscal cliff” and into recession. Yet the reality may prove to be a lot less bleak. Many analysts and economists say even if New Year’s passed with no deal, few businesses or consumers would likely panic as long as an agreement seemed likely soon. The tax increases and spending cuts could be retroactively repealed after Jan. 1. And the impact of the tax increases would be felt only gradually. Most people would receive slightly less money in each paycheck. “The simple conclusion that going off the cliff necessarily means a recession next year is wrong,” says Lewis Alexander, an economist at Nomura Securities. “It will ultimately depend on how long the policies are in place.” It’s always possible that negotiations between President Barack Obama and Republican leaders will collapse in acrimony. The prospect of permanent tax increases and spending cuts could cause many consumers and businesses to delay spending, hiring or expanding. But most economists expect a deal, if not by New Year’s then soon afterward. Businesses and consumers will likely remain calm as long as negotiators seem to be moving toward an agreement. Read the full story here.
Today’s poll question: Do you believe President Barack Obama and Congress will reach a deal and avert the “fiscal cliff” by the end of December?
