— Last week, just in time for the conventions of the nation’s two major political parties, the nonpartisan Congressional Budget Office sent a message that significantly raises the stakes regarding the fiscal crisis looming at the end of the year.
If Congress takes no action to stave off tax increases and automatic budget cuts scheduled to take effect on Jan. 1, the CBO declared, the economy could plunge into a recession. Reading between the lines, it’s clear that the CBO believes there’s no “could” about it — bet on a recession and all its accompanying miseries if Congress doesn’t take action to stop the upcoming disaster.
The customary summer report of the CBO predicted the jobless rate would remain above 8 percent for the rest of the year because it’s too late to do anything about that, and that the federal budget deficit for the year that ends Sept. 30 would be $1.1 trillion.
That’s nothing to cheer about. But what’s coming up at the end of the year — the so- called “fiscal cliff” — is even worse.
Under current law, if Congress and the president can’t come up with a fix, unemployment would rise almost a full point from the current 8.3 percent to 9 percent. Total economic output would shrink at an alarming rate — 2.9 percent in the first half of the year. This is much darker than the earlier forecast by the CBO back in January.
The “fiscal cliff” is the result of the stop-gap budget deal Congress and President Obama reached last year in order to avoid another crisis and allow the government to pay its bills.
It mandates serious belt-tightening in the form of government spending, including expenditures in defense and public services that would be felt right away by many Americans. At the same time, new tax increases would come into play as the Bush tax cuts expire.