What would happen if a deadlocked Congress did nothing?
If the expiring Bush tax rates are allowed to lapse and the automatic spending cuts kick in next year, it could hurl the U.S. economy back into a recession, the Congressional Budget Office warned in a report released Tuesday.
Calling the combination a “fiscal cliff,” the CBO estimated that the economy will most likely contract by 1.3 percent in the first half of 2013 if lawmakers allowed the tax rates to go up and the across-the-board cuts – called a sequester – to take effect. The CBO said the economy will grow at about 2.3 percent in the second half of 2013 under this scenario.
“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,” according to the CBO’s report.
GDP growth for 2013 overall would equal about .5 percent, the CBO projected.
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