CBO: Jumping Off Fiscal Cliff Would Cause Recession, Drive Jobless Rate to 9 Percent.
- Tax increases and spending cuts from the “fiscal cliff” would send the U.S. economy into a recession and drive the unemployment rate up to 9 percent by the end of 2013, according to fresh forecasts from the Congressional Budget Office.
- The report highlights the stakes in the choices lawmakers will face in the six weeks following the election, when the Bush-era tax cuts and the payroll tax holiday are set to expire; the across-the-board spending cuts to defense and nondefense programs are scheduled to take effect; and the length of time under which people can collect emergency unemployment benefits will decrease.
- CBO estimated, however, that the fiscal contraction would shrink the deficit to an estimated $641 billion in fiscal year 2013, from its current estimate for fiscal year 2012 of $1.1 trillion. That’s roughly a $500 billion reduction in the deficit, the magnitude of which has not been seen since 1969.
- Under an alternative scenario, a deal to extend the tax and spending policies for some period of time would add to the deficit but maintain the slow, steady pace of the economy. Under that case, the deficit for 2013 would clock in at over $1 trillion and revenues would be 16.3 percent of GDP. Unemployment would hover just above 8 percent. The only problem? Debt held by the public would climb to 90 percent of GDP by 2022. The country has not seen that scope of debt, says the CBO, since the time period just after World War II.