Tags: Fiscal | Cliff | economy | trillion

Public Policy Group: ‘Fiscal Cliff’ Could Pull $7 Trillion Out of Economy

Tuesday, 01 May 2012 07:46 AM

At the end of this year, the Bush tax cuts are set to expire while automatic fiscal spending cuts are set to kick in, a combination known as a "fiscal cliff" that will do worse than suck an expected several hundred billion dollars out of the economy initially, says Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

The combination of tax hikes and spending cuts will yank $7 trillion out of the economy within a decade and throw the economy back into recession.

"There is about $7 trillion there that ... could be taken out of the economy in a really stupid way that would likely push us into a recession immediately," says MacGuineas, according to CNNMoney.

Editor's Note: The Final Turning Predicted for America. See Proof.

Congressional action could end the uncertainty, MacGuineas says, although simply extending the tax cuts and scrapping the spending cuts will only add to the country's deficits.

"We have to come up with a compromise to thread this needle," MacGuineas adds.

Warnings that the fiscal cliff could derail recovery are growing.

"People don't realize the U.S. was the only major economy in the world that improved last year," says Richard Bernstein, head of money manager Richard Bernstein Advisors in New York, according to USA Today.

"It's not strong, but it certainly has improved. … As we progress through this year, the fiscal cliff will be a major issue — for (financial) markets all over the world."

Others agree that inaction today could bruise the country's tepid recovery or end it altogether.

Without action, the fiscal cliff' could shrink next year's economy by 3.5 percent, or about $575 billion, says Moody's Analytics Chief Economist Mark Zandi, according to USA Today.

"If policymakers do nothing, early 2013 will be recession-like."

Editor's Note: The Final Turning Predicted for America. See Proof.

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