Last Updated:December 21 @ 12:51 pm

CBO: Recession looming

By Alan Fram

WASHINGTON (AP) - A new recession is likely if a stalemate over tax and spending cuts continues between Democrats and Republicans, according to fresh, dire projections by the nonpartisan Congressional Budget Office.

In its annual summertime report, the budget office said Wednesday that letting decade-old tax cuts expire and sweeping spending cuts occur in January - which will happen without congressional action - "would lead to economic conditions in 2013 that will probably be considered a recession."

If that happened, the economy would contract by 0.5 percent - a gloomier projection than the budget office made earlier this year when it envisioned slight growth under that scenario. Unemployment would rise to around 9 percent by late next year if the standoff persists, the analysts said.

The budget office's latest warning came amid a presidential and congressional election year in which neither President Barack Obama nor congressional Republicans have shown any signs of giving ground in their protracted battle over taxes, spending and the budget. The lethargic economy and massive federal deficits are top-flight issues in this year's campaigns.

Obama wants to renew expiring tax cuts for everyone except individuals earning over $200,000 and couples who bring in above $250,000. Republicans are demanding that all tax cuts be extended. The two sides also have made no progress over how to prevent budget-wide spending cuts from taking effect. These automatic cuts were sat in motion by the failure of lawmakers last year to reach a bipartisan debt-reduction agreement.

Letting the tax cuts continue and preventing the spending cuts from taking effect would leave a deficit next year of just over $1 trillion. If the reverse occurs, the shortfall would be $641 billion - in effect sucking roughly $400 billion out of a U.S. economy that is already struggling.

Though continuing the tax cuts and blocking the spending cuts would produce higher economic growth over the next two years, "it would reduce output and income in the longer run and is ultimately unsustainable," the budget office warned.

Wednesday's report projected a $1.1 trillion federal deficit for 2012, the fourth straight year the government's shortfall will exceed $1 trillion.

It also envisions an economy recovering at only a modest pace the rest of this year, growing at an annual rate of 2.25 percent.

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6 Comments

  1. billwvComment by billwv
    August 22, 2012 @ 12:55 pm

    No one has convinced me that the last recession has ended and that would include the 18% – 20% of unemployed [8.3% is a joke] in this nation. If entering into another downturn is called a recession; then I bet we are headed that way. As long as the corruption duo [Ozero and Biteme] are in office we will continue depressed and recession will be right around the corner. We can do A WHOLE LOT BETTER.

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  2. bna42Comment by bna42
    August 22, 2012 @ 3:01 pm

    “letting decade-old tax cuts expire and sweeping spending cuts occur in January – which will happen without congressional action. . .”

    I don’t think the Republicans should be blamed for this as long as Harry Reid rejects every bill as “dead on arrival” as soon as it is passed by the House and Obama “threatens veto” before the House ever votes on it.

    The Democrats are the party that has refused to present a budget for the past 3+ years, which has allowed Obama to run more than $1 trillion deficits every year for the past 4 years. Obama said he would cut the deficit in half but he has added more to the National Debt than any other president. He also said if he couldn’t turn the economy around within 3 years, he would be a one-term president. Even though the Democrats had full control of the entire federal government for two years, they still want to blame the Republicans, and that should be addressed publicly.

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  3. BarbComment by usa4ever
    August 22, 2012 @ 3:44 pm

    NEW recession looming? I think perhaps a more appropriate headline would be: DEEPENING recession looming!

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  4. jwarrenComment by jwarren
    August 22, 2012 @ 4:44 pm

    I wish people who write and talk for a living would get the facts straight at least once in a while. The current TAX LAW , aka Bush Tax Cuts , are , guess what: they are the current rates. IF any tax rate is changed, Congress MUST enact new legislation. I will NOT dignify the Left’s use of the words “tax cuts” here in this sense. By God, let’s cut every tax payers rates and really get an economic rebound going. Remember, if you don’t pay income taxes, you can get a rate cut or reduction.

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  5. rockycreekComment by rockycreek
    August 22, 2012 @ 6:14 pm

    jwarren,

    I agree. How absurd is it that on a GOP website, we have to endure the dishonest rhetoric of the left.

    Precisely NO ONE is proposing a cut in the income tax rates. The only thing being proposed is a tax rate HIKE. Yet, articles like this bombard us with the term “tax cuts” ad nauseum. Yes, I understand the expiration date mechanism forced upon Bush by democrats and spineless republicans. But, the rates are what they are, for a decade now, and we are only proposing an increase, not a “Bush tax cut”. We should be forcing the president and congressional democrats to use honest language, which is “tax hike”.

    Point 2, never mentioned anywhere, is that the “Bush tax cuts”……..worked. Spectacularly. They resulted in revenue (that mysterious r-word never spoken or written in the media) records, year after year, including 2008. Obama will never see the revenues the Bush Administration created.

    Point 3, had we listened to Bush’s repeated warnings when he took office regarding Fannie Mae, and enacted either of the legislative efforts from a decade ago, the housing bubble and resulting recession/depression would never have happened. What we are mired in, for several years now, is not the Bush recession. It is the Frank-Dodd recession, made exponentially worse by economics knowledge-challenged democrats in congress and the white house.

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    • billwvComment by billwv
      August 22, 2012 @ 7:58 pm

      rockycreek: I agree totally and whole heartedly. Dems have a convenient memory and completely faulty.

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