The Congressional Budget Office (CBO) released a soberingreport last month entitled Economic Effects of Reducing theFiscal Restraint That Is Scheduled to Occur in 2013. Itreminds all that in the absence of some action, the nation facesautomatic spending cuts and tax increase in January—a “fiscalcliff,” to use the phrase popularized by Federal Reserve ChairmanBen Bernanke—that would likely turn the already weak economicrecovery to recession. It is hard to argue with the CBO'sconclusions on the economic effects, but it is still reasonable toask if even this Congress, even in a lame duck session after theelection, would allow such a thing to happen. Probabilities suggestthe answer to that question is “no,” that Congress will avoideconomic suicide, allowing the economy's admittedly ploddingrecovery to continue.

The CBO report identifies eight elements of this looming fiscaldrag: five automatic tax hikes and three automatic spending cuts.It estimates their total impact for fiscal 2013 at $607 billion orsome 4% of GDP, enough to turn positive growth negative.

Scheduled tax hikes amount to $399 billion, some two-thirds ofthe total. These include $221 billion from the expiration of theBush tax cuts and last year's decision not to limit the reach ofalternative minimum tax (AMT). The AMT matter applies to 2012earnings but will burden taxpayers' cash flows only after theycalculate their full liability in 2013. Also scheduled is anautomatic $95 billion tax hike from the expiration of the twopercentage-point payroll tax holiday; a $65 billion tax increasefrom the expiration of rules allowing businesses to expenseinvestment property; and an $18 billion hike, built into 2010'sObamacare legislation, on the earnings of high-income taxpayers.