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Congress: Fiscal cliff cuts would mean recession

Austere "fiscal cliff" tax increases and federal spending cuts set for the end of the year would send the economy back into recession and cause a spike in the jobless rate to 9.1 percent by next fall, congressional budget analysts said Thursday.

The tax and spending changes, which a lame-duck session of Congress will dig into next week, would cut the federal deficit by $503 billion through next September, said the Congressional Budget Office report. But the adjustments also would cause the economy to shrink by 0.5 percent next year.

The report, updating an analysis from last May, comes as a newly re-elected President Barack Obama and Congress seek ways to avert or at least ease possible damage from the scheduled changes. All sides are promising cooperation, but many difficult decisions await and the politics of raising tax revenue and cutting federal benefits programs is exceedingly tricky.

The new study estimates that the nation's gross domestic product would grow by 2.2 percent next year if the Bush-era tax rates were extended and would expand by almost 3 percent if Obama's 2 percentage point payroll tax cut and current jobless benefits for the long-term unemployed are extended.

All sides want to avoid the automatic austerity plan, which is a one-two punch of expiring tax cuts and major across-the-board spending cuts to the Pentagon and domestic programs. It is the looming punishment for previous failures of a bitterly divided Congress and White House to deal with the government's spiraling debt or overhaul its unwieldy tax code.

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The largest component of the changes _ dubbed a "fiscal cliff" to be avoided if possible _ comes with the expiration of tax cuts enacted in 2001 and 2003 and extended two years ago after Obama's drubbing in the 2010 midterm elections. Extending the full range of Bush tax cuts would cost the government $330 billion through the September end of the 2013 budget year.

Republicans want to temporarily renew all of the Bush tax cuts, but Obama wants to hike the top two income tax rates to Clinton-era levels. The top tax rate is now 35 percent; Obama would raise that to 39.6 percent. If the rival sides can't enact a bargain by January, the full menu of tax cuts would expire.

The spending cuts would be imposed as a consequence of the failure of last year's deficit-reduction "supercommittee" to reach agreement. There are other elements, chiefly a 2 percentage point cut in payroll taxes orchestrated by Obama and unemployment benefits for the long-term jobless that would disappear.

Extending the payroll tax relief and renewing the long-term unemployment benefits would add another $108 billion to the deficit through September. It's unclear whether lawmakers will seek to avert that in the upcoming deal-brokering.

"Today's CBO report underscores the need to prevent the so-called fiscal cliff from harming American families and businesses, and to instead enact a balanced, long-term deficit reduction plan," said top House Budget Committee Democrat Chris Van Hollen of Maryland. "We must take a balanced approach that includes cuts to spending and cuts to tax breaks for millionaires and special interests that we can no longer afford." (AP:WASHINGTON)

By ANDREW TAYLOR
Associated Press

 

Comments

  1. mooo says:

    There seems to be a stock market effect from where a President is seen to be spending gummint $$. See here...

    The Motley Fool: "What Stocks Do After Elections"
    http://www.fool.com/investing/general/2012/11/05/what-stocks-do-after-elections.aspx?source=ifwflweml0000740

    • abu hassan says:

      "Fiscal cliff" is so alliterative that it begs repetition, sounding more important than it is. "F-c-l c-l-f" sounds no better than "f-c-l f-l-c", "fiscal flick", a better view of it.

      Tax and spending changes would cut the federal deficit by $503 billion through next September and the economy by 0.5 percent next year, said a CBO report. Is that what all the moaning's about? Executive prerogative alone might offset that, if used on high multiplier effect policies.

      Ignoring the GOP, as we all should, Nobel Laureate Paul Krugman has already told us "How to End This Depression", http://bit.ly/IZ3rhb - in the same manner Truman and Ike dug us out after WWII.

      Tax rates need not be increased. Just remove the SS income cap, and require those with income over $250k to file twice: normally up to $250k, then again for everything over $250k with no deductions, exemptions, or special treatment for investment income.

      It's no increase in rates, but still the rich will howl. Let them. Much more than after WWII, it's time they paid for their wars themselves.

  2. This was all done by a democrat controlled congress from January 2007 that intentionally crashed the banking system. If you haven’t learned yet that the liberal media has been lying about everything for the past 100 years then you never will. Everything you have learned from the liberal progressive’s lame stream media is the opposite of the truth and what you have been told is nothing but lies. Your statement about the mess created by Bush proves you believe the lies as it was the democrat controlled congress that created the mess. The truth is always there you just have to look for it. Just go look at some charts of markets and employment from January 2007 once the democrats took control and then go to the September 2008 bank collapse.
    The democrats didn’t inherit this economic mess they caused it.
    http://wp.me/pO1Ho-9w
    The first thing democrats did in 2007 was pass massive amounts of regulations on small and large businesses and somehow people thought that was good. Then look at the employment it turned negative December of 2007 and got worse every month and the democrats controlled congress it only took 10 months for the liberals and progressives to cause a recession and they just watched and passed even more regulations. Then they spent $1 trillion in deficits in there very first budget that closed out the very month the banks crashed September 2008. The deficits caused the banks to collapse and happened before not after the bank crash it’s not what the media reports that it was the crash that caused the deficits. The economy is always controlled by the politics; they teach a Corse in collage called political economy. I learned in the real world from running a business for over 30 years and that taught me that politics can really screw things up.
    Do some research outside the liberal media and you might figure out the truth. The democrats didn’t inherit this economic mess they caused it. All the proof is in the government documents and records on the above web page address to the government documents can be found on the website. http://wp.me/pO1Ho-9w

    • Gene says:

      Please calm down. Everyone is so angry. The economy turns as fast as an aircraft carrier. Regardless of what you read on Orwell's internet, the crash wasn't caused by one party's policies. It took both of the major parties to fight and bicker to get to the results we have today.

      Look, when I hire a surgeon I expect him/her to use all of their training, skill, and ethics in their work. Same for a teacher and certainly for my fellow engineers. When they screw up they're gone. I expect the Wall Street bankers and our elected officials to have the same standards. Do you expect me to believe these highly paid professionals couldn't see the writing on the wall that the bubble they created would likely burst? If they saw it coming, they're criminals. If they didn't see it coming they're incompetent. Either way they should all be out on the streets today. Government is government and is not changing any time soon. It takes personal responsibility and personal ethics to make our society work.

      I'm certainly not sticking up for Obama, but I'm sorry, he's not the source of the problem. All of this finger pointing is not helpful. It must be time to take the dog for a walk....

      • JP says:

        Nope! It took one party over 50 years to bring us to this point. Democrats! Socialism! Everything the Democrats have done over the past 50 years. I lived it. Good bye America as we new it! :(

    • Clarence Grier says:

      You are the only person I have heard who is blaming the Democrats for the 2007 fiscal mess. I am not doubting you. I've just not heard any Republican candidate for president or any other Republican lay this fiscal mess at the feet or the Democrats.

      • dennis king says:

        Every one knows it started with Clinton's Affordable Housing Act, but Bush and Greenspan did not stop the craziness, there is enough blame for everyone.

        • JP says:

          Actually Dennis, CRA started with Carter and Clinton put it on steroids. Bush did try to do something about the accounting situation, FannieMae and FreedieMac. Both the Democrats and Republicans in congress was the problem but Frank/Dodd are the real culprits. In 1993 Clinton and the Democrat Congress lowered the bar with the standard banks getting into the Subprime mortgage market and CRA, that was the start of the mess we are in today. That is also a story to tell for another day.

      • JP says:

        Clarence, I have been in mortgage banking for over 25 years. Believe me the Dummycrats are to blame and the problem is that RINO's like McCain and Romney whom were hand picked by the Republican Establishment are Dumazzes and can't articulate anything. As I have studied history and economics and watched the enonomic numbers being reported week in and week out in my opinion JFK was the best president on economic policy and Ragan second and G W Bush third. The rest were economic dumbazzes! They actually created the mess we are in right now. When Dummycrats took over in the beginning of 2007 they put the nail in the coffin and blamed G W and still get away with blaming GW. What a bunch of Commies! They can only do this with the State Run Meadia.

    • JP says:

      James, that was the best post I have ever seen. Well said. I would have told you earlier but when I saw Gene' post I kind of lost. I guess I am a very angry Angry Greek American White Man. HEHE

  3. Sid says:

    Globally democracy has failed. We need benign dictatorships. Anyone agree?

    • dennis king says:

      It seems that is what is taking place in the EU and through the power oligarchy in the US. The US, however, has a split between the players. I wonder if the banksters will let Obama get away with what he has in mind. Could get interesting.

    • mooo says:

      "The basic feature of our economic theory is that we have no theory at all." - Adolf Hitler

      There is a better way.

      "Alan Greenspan has proclaimed himself 'shocked' that 'the self-interest of lending institutions to protect shareholders equity' proved to be an illusion... The Reagan-Thatcher model, which favored finance over domestic manufacturing, has collapsed. ... The mutually reinforcing rise of financialization and globalization broke the bond between American capitalism and America's interests. ...we should take a cue from Scandinavia's social capitalism, which is less manufacturing-centered than the German model. The Scandinavians have upgraded the skills and wages of their workers in the retail and service sectors -- the sectors that employ the majority of our own workforce. In consequence, fully employed impoverished workers, of which there are millions in the United States, do not exist in Scandinavia." - Harold Meyerson, "Building a Better Capitalism", The Washington Post, March 12, 2009.

    • JP says:

      Agree Sid, Democracy has failed we need to go back to the Free Republic our founding fathers set up.

  4. Gene says:

    Jeez, you all are so negative. Obama didn't crash the economy. Look at the pile that George Bush handed him on his way out. The market has done good (and bad) under both parties. Look where the market was when Obama took office and look where it is now. Hint: It didn't go down. You've got to be nimble like a trader in all markets.

    Jp, if you bought nasdaq puts today, I'm the guy who sold them to you. Oh, and I didn't vote for Obama or Romney. The two party system is no way to have a sustainable democracy. Look how many voices the Rebulicrats keep silent.

    Don't punish yourself for the next four years. Just concentrate on being a good investor.

    • Ted says:

      Gene, Gene, Gene:
      So it's all W's fault. How long is it going to be W's fault? Then, you don't even vote - just want to be a good investor, huh? Look in the mirror bud..........you and those of your ilk are the problem. When our freedom's are eroding as fast as they are and our society is crumbling you do nothing and believe in nothing and soon you will have nothing.

      • Gene says:

        Ted...aka 'angry white male'...You know nothing about me.

        I vote in every election. Why do you assume that because I don't vote for a Republican or a Democrat that my vote doesn't count? You think the choice is between Tweedle Dee and Tweedle and Tweedle Dum? My society is not crumbling, but it sounds like yours might be. Tell me specifically which of your freedoms have eroded. What can you not do now that you used to be able to do.

        It's certainly not all W's fault, but he did bring us a cabinet full of hawks and wall street folks that dug a pretty deep hole. He did lie to the nation to get us into a very nasty war. Let's see, what exactly did Iraq have to do with 9/11? Hmmm, I wonder why Bush disappeared off the planet.

        Relax, we're not going to fall off a fiscal cliff and the world won't end when the Mayan calendar expires. Try shutting off Fox news for a while, take a vacation. Please don't blame everyone else for your problems. We have enough of our own.

        Believe in nothing? Do you actually read what you write? You know nothing about me; but I forgive you.

        • Ted says:

          Gene:
          Angry white male? I haven't even joined a militia yet!!

          How can you say we are not losing freedom? Gone through an airport lately? Ready to pay for your government mandated health insurance? I'm a private pilot - do you know how many new no fly zones have been implemented in the last few years? What about potential threats, the open mike comment to Medvedev, treaties being worked on at the UN that would supercede some of the rights in our constitution if ratified by the senate? I'd say that every government act is an encroachment on our freedoms as the very nature of government is to control. Our challenge as citizens of this country, under what is supposed to be a democratic republic, should be to limit the size and power of government. I am glad you voted though - even if you didn't vote for tweedle-dee or tweedle-dum (and you would be amazed at how much I agree with you on that description). I'm just more pragmatic and voted for the lesser of the two evils that I thought had any chance at all of winning. The thought being that any move back to the right is better than none at all. Of course, now I'll find out you voted for the communist ticket. If that is so, I guess I am the angry white male by comparison as what is happening to our society would be right down your ideological alley. Keep smiling.

          • Gene says:

            Ted, we probably agree on more than we disagree, but definitely two different approaches. I would like to comment on your two examples of loss of personal freedoms because I've heard this before. Airport security did not come from the Democrats or the liberals. I would argue that the extreme left would say travel at your own risk (as would the extreme right). Do you think the 9/11 perpetrators are/were insane? Suicide bombers insane? Are they trying to take over our country? Are they backed into a corner? Are we innocent victims, or do we have a role in their actions?

            I read all the time about the Muslims and commies coming to get us and take away our way of life, but I never see anyone talking about why anyone is willing to give up their life like a Minuteman to come after us. Maybe it's time for a public root cause analysis. Maybe corporate America will have to change the way they do business, or maybe just rely on the local military in the country they have exported their jobs to instead of our military, here where their corporate offices are.

            Regarding health care insurance, by law every hospital is required to treat anyone who shows up regardless of ability to pay. When you or someone in your family shows up with severe chest pain you don't want to wait for three hours while someone determines if you have the ability to pay for your visit. This is a tough issue and hospitals are going under because they don't get paid for many high tech services. Loss of freedoms? Democrats? What's the answer?

    • dennis king says:

      How are those puts working out for you?

      I do agree there is no point in voting until this country returns to a system based on a Constitutional Republic and democracy. Right now it is just a fascist power oligarchy with a brand name narcissistic personality disorder for a president.

      • JP says:

        Dennis, find stocks trading above or at their yearly R2 and watch for the daily and weekly red trade triangles and buy PUT's no less then 3 months out. I you want to get risky buy some within one or two months out and as soon ast you make 40 to 150% cash in. I have been doing very will with both.

      • JP says:

        Hi Dennis, have you bought any PUT's yet? Don't listen to Gene he is a LOOSER. Find some good stocks at or above thier yearly R2 and buy PUT's with the first daily red triangle. I bought some PUT's this morning on HD and look out bro it was a daily red triangle also which made for a perfect entry point Also I noticed a solid close below the 200 DMA on SnP's. There is some strong downside in the market. I haven't seen this in a long time. Forget all the political rhetoric the Dummycrats really screwed this country up and the last ditch to fix was on Nov 6th so LOOK OUT BELOW! Enjoy the ride down by making some money.

    • JP says:

      HAHAHA I TOOK YO MONEY!!!!! HAHAHAHAHAH! HAHAHAHAHHA! HAHAHAHAH! ALL THE WAY TO DA BANK! BRO. HEHEHE Tanks Gene for giving me your money. HEHEHE! I love suckers like you. Keep buying call's bro.

    • JP says:

      Gene, you have no clue about anything. Good thing you are leaning how to trade the triangles because you would be a lost puppy if you didn't.

      • mooo says:

        Through a screw-up on this website, I happen to know Gene is a respected faculty member at an American university. I suggest you moderate your opinion.

    • JP says:

      Gene, I love my qqq PUT's. By the way how's those unemployment numbers looking today. You know the ones after the election. The ones before the election were missing two states. Obama and his administration and czars are fraudsters. The rich are already taking their money out of the market before the end of the year because they forsee what is coming. This market is going down. When you see the market bounce up that is the time to buy more PUT's.

  5. l freeman says:

    Please, let's fall off that fiscal cliff. If the current government thinks it's a bad thing, that means it's good. It's the only way we'll ever reduce the military budget (reduce the growth, that is; not actual reduction). Anyone remember the "Peace Dividend"?

  6. Will Harden says:

    I had a discussion with a neighbor a couple of weeks ago. He said that he knew of several businessmen who had money to invest, people to hire, plans to expand their businesses as well as the designs of new workplace buildings to build, but were waiting for the outcome of the election. He said that none of them trusted Obama enough to risk expansion.
    I guess that none of that is going to happen.

    • JP says:

      My wife received a letter from her employer and I spoke to many people that got a letter from their employers and all I can say is that it's not gonna be a good year in 2013. Capitalism can do without Socialism but Socialism could NEVER do without Capitalism. The US will be learning that lesson very soon. The problem in the US is that 50% of its citizens like Socialism, that is, until the next few years or so. Hey, the other 50% will pick up the peaces when its all said and done.

  7. jp says:

    This perfect storm has been brewing for long enough. I am completely out of the equity market and working with all my PUT options. I cashed out near the top and plan on staying out for a long time. Our re-elected Socialist is going to wreck the US economy and I plan on cashing in by mainly shorting the market. Looking good so far.

  8. Master Joe says:

    This is a load of crap. We don't need a balanced approach we need a balanced budget. We need a cap on government spending. We need to quit stealing our kids money and letting politicians and their friends spend it as they wish. Taxing the rich more will not decrease your taxes. Taxing the rich will not balance the budget.

  9. mooo says:

    Fiscal cliff = recession? Kinda flies in the face of GOP claims that gummint doesn't create jobs... doesn't it? (see link under name)

  10. dennis king says:

    I wonder if Obama really wants to avoid the fiscal cliff. Did he not say during his acceptance speech that "the american people will fall together, as one nation"?

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