The Washington Post reports:
The nation would be plunged into a significant recession during the first half of next year if Congress fails to avert nearly $500 billion in tax hikes and spending cuts set to hit in January, congressional budget analysts said Wednesday.
The massive round of New Year’s belt-tightening — known as the fiscal cliff or Taxmageddon — would disrupt recent economic progress, push the unemployment rate back up to 9.1 percent by the end of 2013 and produce economic conditions “that will probably be considered a recession,” the nonpartisan Congressional Budget Office said.
The outlook is considerably darker than the forecast the agency released in January, when the CBO predicted that the fiscal cliff would trigger a mild recession in the first half of 2013 followed by a quick recovery.
Since that forecast was issued, Congress has steepened the cliff by extending a temporary payroll tax break and emergency unemployment benefits, which are now also set to expire in January. In addition, CBO analysts have concluded that the underlying economy is weaker than had been predicted. …
The shock would be felt for years to come, with the unemployment rate stuck above 8 percent through 2014, the agency said. And the effects are likely to be felt well before the fiscal cliff hits, as “businesses’ and consumers’ concern about the scheduled fiscal tightening will lead them to spend more cautiously than they otherwise would have” during the remainder of 2012.
It may seem hard to believe given our moribund economy that this is not a recession. The term “recession” is defined not by unemployment or personal income growth, but only as consecutive quarters of negative economic growth. We’re in an economic expansion that is nonetheless the weakest economic expansion since the end of World War II. Which makes one ask …
President Obama, of course, is claiming that a recovery is taking place. Ace of Spades thinks otherwise:
Total Private Employment From the Current Employment Statistics Survey (National)
What Obama likes to do is count jobs “created” from the deepest depth of the recession. But that’s not how we count recovery from a recession — we say we’ve recovered when we’ve recovered up to the previous high point.
As the collapse was still occurring when Obama took office, there was still further to fall, so Obama likes to pretend that any jobs above the lowest-of-the-low are jobs he “created.”
At this point in time, Obama still hasn’t “created” a single net new job. His job figures remain negative, except when you play games as far as your start period for counting them.
Both Bush and Reagan added new jobs on top of the previous high-water mark for employment. Reagan’s expansion was fueled by millions and millions of such jobs.
Obama has yet to even get back to zero.
The Heritage Foundation adds:
Taxmageddon is the $500 billion tax hike slated to take effect on January 1, while the fiscal cliff consists of Taxmageddon plus various spending reductions—among them the sequestration left over from the disastrous negotiations that led to the Budget Control Act in 2011.
According to CBO’s analysis, if Congress defuses Taxmageddon and the fiscal cliff, then the economy will grow at a tepid 1.7 percent in 2013 and the unemployment rate will remain stuck around 8 percent. But if President Obama and Congress play chicken with Taxmageddon and fail to act, then the economy will contract by about 0.5 percent and the unemployment rate will shoot up to 9.1 percent, about halfway back to the peak from the past recession.
Forget percentages—what does this mean in actual jobs lost if President Obama and Congress fail to act? It means roughly 1.6 million more Americans will be out of work—on top of the 12.8 million who already want to work but can’t find jobs.
Just about every relevant school of economics, from the President’s pure Keynesianism to supply-side and neoclassical persuasions, tells much the same tale on net: Raising tax rates on a weak economy produces a weaker economy. It’s not terribly complicated. …
The other good news is that Congress will have time after the August recess to avoid the economic peril that CBO projects. Talk of 2013 and tax reform is dangerous, and waiting on a post-election lame-duck session even more so, as the policy outcome would likely be worse. Both likely assure a recession, for which this Congress and this President will unequivocally be at fault.