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U.S. Fiscal Policy Could Trigger Second Recession
The American economy could fall off a "fiscal cliff" into recession early next year if legislative gridlock continues in Washington, D.C., according to the Congressional Budget Office.
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The American economy could fall off a "fiscal cliff" into recession early next year if legislative gridlock continues in Washington, D.C., according to the Congressional Budget Office.
The audit agency warns that the economy could shrink 1.3% in the first half of 2013 if Congress fails to extend the Bush administration tax cuts for the wealthy and middle class and cancel an automatic $1.2 billion reduction in defense and domestic spending due late this year.
If those actions are taken, America's gross domestic product would grow 4.4% next year, the CBO predicts. The budget office previously forecast 1.1% expansion for the full year. It now predicts that under a no-action scenario, GDP would grow a scant 0.5% for the full year.
Lawmakers are expected to avert the crisis at the last minute. But some economists fear that election-year politics could delay a resolution until it is too late.
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