The American people should be prepared for a second recession in 2013 if lawmakers cannot reach some sort of agreement on how to contain the federal budget.
According to the nonpartisan Congressional Budget Office, 2013 scheduled tax increases and spending cuts will completely devastate the meager gains made thus far in the so-called recovery. That would mean shrinking economic production of over 0.5 percent, unemployment around what it is now (8.1 percent) and an overall dismal economic picture.
According to the CBO’s report released last week, “Whether lawmakers allow scheduled policy changes to take effect to alter them will play a crucial role in determining the path of the federal budget over the next decade and the outlook for the economy.”
Translation: Stop playing politics with the American economy or pay the price in 2013.
Yet with all this dire news, it is widely assumed Congressional leaders will not act on the Bush-era tax cuts set to expire Dec. 31 or $1 trillion in automatic spending cuts that would begin taking effect in January until the lame duck session following the election.
It is no wonder Congress rates lower than President Obama in every poll.
The deficit will be $1.1 trillion in fiscal 2012 or approximately $100 billion less than CBO projected last March. Although that will be less than last year’s $1.3 trillion, it can be attributed to a six percent rise in tax revenue while spending is down a “whooping” one percent.
This will be the fourth year in a row that the country has run a trillion-dollar budget deficit. The forecast is for the U.S. debt to total 73 percent of gross domestic product this year alone – the highest level since 1950 or twice what it was five years ago.
The disturbing report comes less than three months before the election and could very well influence the outcome. Naturally both parties have very different solutions to this fiscal crisis with Republicans calling for spending cuts with no tax increases, and the president proposing higher taxes for top earners.
Unfortunately, President Obama’s plan would fund the federal government a total of 17 days if enacted – far from a practical solution, but popular on the campaign trail.
In reality, the report makes it abundantly clear that middle class families need “confidence that they won’t see their taxes go up at the beginning of next year,” said White House spokesman Jay Carney in a statement.
Strangely the president’s rhetoric doesn’t mesh with his spokesman’s words.
House Majority Speaker John Boehner shot back, “Instead of threatening to drive us off the fiscal cliff and tank our economy in their quest for higher taxes, I would urge President Obama and congressional Democrats to work with us.”
Meanwhile, responding to Boehner, Congressman Chris Van Hollen of Maryland, the top Democrat on the House budget committee, retorted, “Republicans in Congress refuse to enact the president’s plan, choosing instead to protect special interests and tax breaks for the wealthiest.”
Americans should count on the “economic recovery” to continue at a very modest pace, according to the CBO, and real GDP growth will have an annual rate of 2.25 percent in the second half of the year. Unemployment will continue to hover over eight percent with inflation remaining low.
The real question in the next 72 days is whether this is the best we can do or is new leadership needed in the top spot?
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