CBO Issues New Fiscal Cliff Warning
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Put away the party hats and noise makers: It’s going to be a not-so-happy New Year, according to an updated budget and economic outlook from the non-partisan Congressional Budget Office.
The CBO released its latest report today and it’s even more dismal than the one they released in January.
In January, the CBO said
“The U.S. budget deficit will shrink this year to $1.1 trillion…The deficit, which would be down from last year’s $1.3 trillion, will fall because of strengthening tax revenue and a slowdown in government spending, the nonpartisan agency said.
The deficit would reach $1.5 trillion by 2022, CBO estimated, and the debt would reach levels unseen since the government was paying off its World War II expenses.”
Today’s report--very likely the last one of the year ahead of the November elections--warns that the U.S. economy will go into a recession early next year if Congress fails to act and allows the Bush-era tax rates to expire and automatic spending cuts to take effect in January. (See the CBO infographic below for more alarming details.)
According to The Washington Post:
The massive round of New Year’s belt-tightening — known as the fiscal cliff or Taxmageddon — would disrupt recent economic progress, push the unemployment rate back up to 9.1 percent by the end of 2013 and produce economic conditions “that will probably be considered a recession.”
The shock would be felt for years to come, with the unemployment rate stuck above 8 percent through 2014, the agency said. And the effects are likely to be felt well before the fiscal cliff hits, as “businesses’ and consumers’ concern about the scheduled fiscal tightening will lead them to spend more cautiously than they otherwise would have” during the remainder of 2012.
To avoid the cliff, Congress and the administration should agree to extend the 2001 and 2003 tax rates and find appropriate spending cuts to replace the ones scheduled to take effect.