The Congressional Budget Office reported this week that the economy will slip back into a mild recession next year if Congress allows Bush-era tax cuts and other breaks to end just as automatic spending cuts take effect on Jan. 1, 2013. The tax hikes and spending reductions — which some are calling "Taxmageddon" — would siphon $607 billion out of the economy. If that happens, the nonpartisan CBO estimates, the economy will shrink by 1.3 percent in the first half of the year. If the changes are canceled, the recovery will gather strength. Can President Obama and a divided Congress work together to prevent disaster?
If we're depending on Congress, we're in trouble: Congress could avoid plunging off this "fiscal cliff," says Jon Healey at the Los Angeles Times, by imposing a responsible new mix of tax hikes and spending cuts rather than an automatic, across-the-board package. Washington could "actually help the economy by reducing anxiety about future taxes and interest rates," encouraging businesses to invest and expand. But given Congress' inability to reach a "grand bargain" on the deficit last year, we should brace for the CBO's doomsday scenario.
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