CBO warns of US falling off ‘fiscal cliff’
[img]http://l.yimg.com/bt/api/res/1.2/oXh_6AJBHy_uEbdrklkymA–/YXBwaWQ9eW5ld3M7Zmk9Zml0O2g9Mjg-/http://l.yimg.com/os/152/2012/04/21/image001-png_162613.png[/img]By ANDREW TAYLOR | Associated Press – 40 mins ago
WASHINGTON (AP) — A new government study released Tuesday 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 — and that the higher tax rates and more than $100 billion in automatic cuts to the Pentagon and domestic agencies are kept in place.
There’s common agreement that lawmakers will act either late this year or early next year to head off the dramatic shift in the government’s financial situation. But if they were left in place, CBO says it would wring hundreds of billions of dollars from the budget deficit that would “represent an additional drag on the weak economic expansion.”
CBO projected that the economy would contract by 1.3 percent in the first half of 2013, which would meet the traditional definition of a recession, which is when the economy shrinks for two consecutive quarters.
“Such a contraction in output in the first half of 2013 would probably be judged to be a recession,” CBO said.