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.
It's a point that Republican leaders have hammered at again and again in an effort to move President Obama into responsible negotiations over keeping the Bush tax cuts.
In an exclusive interview Monday, Sen. Jeff Sessions, the ranking Republican member of the Budget Committee, told Newsmax that keeping the cuts are essential to preventing another recession.
“It looks like there will not be a vote until after the election, but I can’t say that for certain — but it certainly looks like that,” predicted Sessions. “That’s not healthy because we need certainty in our tax rate. There’s far too much uncertainty in our financial condition in America today.”
Last week, House Speaker John Boehner called on Congress and the White House to work out a long-term deficit deal and threatened not to raise the nation’s debt ceiling next year unless a greater amount of spending cuts is enacted.
But Senate Minority Leader Mitch McConnell has said that Obama is not behaving like an "adult" on negotiations to stave off the fiscal disaster.
McConnell said that without Mr. Obama taking action, nothing can be done regarding debt. "Look, without presidential leadership, nothing is, can be accomplished," he said. "We didn't have presidential leadership last year. It's pretty clear the president's not going to lead on this any time soon.
"We don't control the entire government," McConnell added. "We control the House of Representatives only. We'd like to do something about the nation's biggest problem — spending and debt, which is, of course, the reason for this economic melees and this high unemployment — and whenever the president is willing to engage, we're ready to go."
CBO's report says immediate tax increases and spending cuts would "represent an additional drag on the weak economic expansion."
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. "
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