‘Fiscal Cliff’ May Mean Recession

Congressional Budget Office warns tax hikes, government spending cuts could cause U.S. economy to contract in 2013.

The U.S. economy will probably tip back into recession next year if Congress doesn’t address an impending “fiscal cliff,” the Congressional Budget Office said.

The nonpartisan agency said in a report today that the economy would contract at annual rate of 1.3 percent in the first half of 2013 if lawmakers allow the Bush-era tax cuts to expire as scheduled and don’t head off $1.2 trillion in government spending cuts set to begin taking effect in January.

The economy would resume growing in the second half of next year, CBO said, at an annual rate of 2.3 percent.

“Such a contraction in output in the first half of 2013 would probably be judged to be a recession” according to past recessions as identified by the National Bureau of Economic Research, CBO said.

“Policymakers face difficult tradeoffs in deciding how quickly to implement policies to reduce budget deficits,” the report said. “Particularly important given the current state of the economy, immediate spending cuts or tax increases would represent an added drag on the weak economic expansion.”

Lawmakers in both parties have said they don’t plan to allow all of the tax increases or spending cuts to take effect, although they don’t agree on how to address them.

 

 

Bloomberg News

 

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