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CBO: Fiscal cliff likely to cause recession
Trillions of dollars in looming tax hikes and spending cuts set to take effect next year would likely cause a recession, the Congressional Budget Office said Tuesday.
At issue is the so-called fiscal cliff -- a series of measures set to begin in January that would take more than $500 billion out of the economy in 2013 alone.
Those measures include the expiration of the Bush tax cuts and protection of the middle class from the Alternative Minimum Tax, the onset of $1 trillion in blunt spending cuts, and a reduction in Medicare doctors' pay.
If Congress lets all those policies take effect, inflation-adjusted growth for 2013 would be just 0.5% -- with the economy projected to contract by 1.3% in the first half of the year and to grow by 2.3% in the second half.
"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," the CBO said.
But the agency cautioned that just canceling all the fiscal cliff measures and not imposing "comparable restraint in future years" would hurt the economy in the long run. [read more]Yup, damned if you do and damned if you don't. Where did I put my parasail?