If Congress and the Obama administration allow scheduled tax increases and spending cuts to occur, the economy will shrink by 0.5 percent in 2013. The unemployment rate would soar to 9.1 percent — up from 7.9 percent today. Senate Finance Committee Chairman Max Baucus (D-Mont.) asked for the report and said the findings are another reminder of the need to find an alternative to the tax increases and spending cuts that make up the fiscal cliff. “The consequences of inaction will deliver a dramatic, short-term blow to the economy,” Baucus said in a statement. “We need to build a bridge over this fiscal cliff. We need to work together — Republicans and Democrats — on a solution that provides some certainty to American families and businesses, while also bringing down our deficit and debt.”
The report largely echoes earlier CBO projections about the fiscal cliff’s impact. An aide for House Ways and Means Committee Chairman Dave Camp (R-Mich.) said the report “confirms that raising taxes on all taxpayers will result in fewer help wanted signs hanging in the windows of businesses across the country.” “Job creators agree and have made it clear that raising taxes will result in a weaker economy and fewer jobs for the millions of Americans struggling to find work,” the aide said. “They are depending on the administration to provide the certainty they need to invest, hire and plan for the future. Achieving that certainty begins with stopping all tax hikes and focusing on pro-growth tax reform. The House stands ready to work with the White House and Senate to achieve those goals.”
The CBO said the outlook would be much more positive if Congress extended some or all of the expiring tax cuts and blocked the $109 billion in spending cuts slated next year for discretionary and mandatory programs. If Congress blocked the spending cuts and extended all of the expiring tax cuts — except for the payroll tax break — the economy would grow by 2.25 percent next year. Adding the payroll tax cut and an extension of unemployment benefits would nudge the growth closer to 3 percent. The report also demonstrates that extending all of the soon-to-end tax cuts would provide the biggest boost to the economy. Continuing the breaks for all taxpayers would boost GDP by 1.5 percent. An extension just for families making less than $250,000 and individuals earning less than $200,000 — the level that Democrats are seeking — would expand the economy by 1.25 percent.
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