CBO: Ending Bush Tax Cuts Will Send US Off 'Fiscal Cliff'Tuesday, 22 May 2012 04:37 PM 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 percent in the first half of next year if
the government is allowed to fall off this so-called "fiscal
cliff" on Jan. 1. The cliff is what experts call the combination
of higher tax rates and more than $100 billion in automatic cuts
to the Pentagon and domestic agencies. CBO is the respected nonpartisan agency of Congress that produces economic analysis and estimates of the cost of legislation. “Given the pattern of past recessions as identified by the National Bureau of Economic Research, such a contraction in output in the first half of 2013 would probably be judged to be a recession,” the report states. A recession is technically defined as two economic quarters of negative economic growth.If Congress and the White House turn off all the automatic cuts and tax increase, growth would rise to 4.4 percent, CBO predicted. The CBO projections appear to go farther in stating the economic risks of lawmakers failing to act than other policymakers have gone. Fed Chairman Ben Bernanke has warned of the risk to the economic recovery, the Hill pointed out. "It's very important to say that, if no action were to be taken by the fiscal authorities, the size of the fiscal cliff is such that I think there's absolutely no chance that the Fed could or would have any ability to offset, whatsoever, that effect on the economy," Bernanke told reporters in April. "I am concerned that if all the tax increases and spending cuts that are associated with current law would take place, absent congressional actions . . . that'd be a significant risk to the recovery. " © Copyright 2012 The Associated Press. All rights reserved. |