CBO Points Out the Fiscal Cliff
The Congressional Budget Office (CBO) released its review of the economic impacts of the upcoming fiscal cliff faced by the United States. If tax hikes and spending cuts are enacted, the CBO believes the U.S. will fall into recession. You can read the Reuters story at http://news.yahoo.com/fiscal-cliff-could-cause-u-recession-cbo-221828941--business.html
WHY YOU SHOULD CARE
Just as in 2011, when we faced the debt ceiling debate, we need politicians in Washington to come together to find a compromise to help us avoid some of the fiscal head winds that are set to kick-in at the beginning of 2013. Hopefully we’ll get a better showing from our elected representatives this time around, but to be back in this situation, held hostage by Washington again, is truly unsettling.
The fiscal cliff refers to the scheduled expiration of the Busch tax cuts, the addition of new taxes associated with the new healthcare legislation, expiration of the payroll tax holiday, expiration of extended emergency unemployment benefits, cuts to Medicare reimbursement rates, and, just for good measure, the agreed upon automatic spending cuts which came as part of the debt ceiling debate known as sequestration.
All told, this list totals between $450 - $550 billion worth of spending cuts and tax increases. Now, the U.S. economy is roughly $15 trillion, so this represents roughly 3.0-3.7% of U.S. GDP. The U.S. grew real GDP by only 1.7% in 2011, so you can see the problem we face. The global economy is already under pressure from a recession in Europe and slowing growth in China and other emerging market economies. We simply cannot afford to have the U.S. in recession as well.
Unfortunately we are in the midst of a Presidential election, so the focus is on electing a Commander-in-Chief and Congress has been relatively silent so far, preferring to play the waiting game to find out who the leader of the free world will be rather than shaping the debate and proposing legislation.