CBO: Unless Congress Acts, Economy Could Relapse in 2013

A new report released by the Congressional Budget Office suggests a combination of higher deficits in the short term with adoption of tax and spending policies meant to gradually reduce annual deficits later in the decade.

U.S._Capitol_Building_at_NightWASHINGTON — The economy could relapse into a recession if President Obama and Congress remain at an impasse and allow several big tax increases and spending cuts to take effect at the start of 2013, the Congressional Budget Office recently reported.

The nonpartisan budget office analyzed the impact of what has come to be called the year-end fiscal cliff. Largely by coincidence, several big tax cuts, including those from the Bush era, will expire as deep across-the-board spending cuts take effect. Many economists say the jolt of tax increases and spending cuts would shock the economy after four years of stimulus measures.

In the first half of 2013, the economy would contract at an annual rate of 1.3 percent, the report concluded, instead of growing by a similar rate. Slow growth would resume in the second half, it said.

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Source: Jackie Calmes | The New York Times