IMF Warns U.S.: No (Fiscal) Cliff Diving
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The International Monetary Fund (IMF) warned that the U.S. economy could be threatened if policymakers do not find a way to avoid the “fiscal cliff”--automatic tax increases and spending cuts scheduled to occur at the beginning of 2013.
On PBS Newshour, Christine Lagarde, managing director of the IMF, said going over the fiscal cliff would "erode confidence" and lead to lower economic growth. She went on to say that avoiding the sharp fiscal contraction would not only help the U.S. but also provide "better stability" globally.
Bloomberg reports on the types of businesses that could be affected by the impending spending cuts—and it’s not just defense companies:
- Package delivery companies could reduce flights if the FAA cuts the number of air traffic controllers.
- Airlines could also raise ticket prices if they have to reduce the number of flights.
- Hotels and restaurants near national parks could see fewer customers if the National Park Service shortens the summer season at places like Yellowstone.
The result could be one million defense and non-defense jobs lost in the next two years according to the Bipartisan Policy Center’s Steve Bell.
Also, the impending fiscal cliff has dropped more uncertainty onto the economy:
“Both the government and its contractors will be reluctant to make new commitments in the months leading up to” January when the automatic cuts start taking effect, [George Washington University law professor Daniel] Gordon said in an e-mail. “I’d expect the government and contractors to do less hiring than normal in October, November and December. I’d also expect the federal agencies to delay decisions that commit them to spend money, whether by hiring, contracts, or grants.”
Stan Soloway, president of the Professional Services Council, told Bloomberg, “[T]he uncertainty is the only certainty right now for everybody.”
Falling off the cliff can be avoided. As Bruce Josten, the U.S. Chamber’s Executive Vice President of Government Affairs suggested in a letter to Congress, first extend the current tax code for up to two years, then get working on comprehensive tax reform and “develop a long term plan to address America’s excessive spending, particularly entitlement spending.”