Wednesday, May 23, 2012

CBO Report Says Deficit Reduction Will Cause New Recession

A new government report said spending cuts scheduled to go into effect in 2013, coupled with the simultaneous expiration of Bush-era tax cuts, will shrink the U.S. economy and raise unemployment -- contradicting the Republican claim that reducing the federal budget deficit will spur economic growth.

The Congressional Budget Office report, released on Tuesday, estimated that the policies slated to kick in on Jan. 1 would slash the deficit and shrink the national economy by 1.3 percent during the first half of next year, likely throwing the country over a "fiscal cliff" into another recession.

If left in place, the current policies would reduce the federal deficit by $607 billion, or 4 percent of gross domestic product, the report said. That reduction, from immediate tax increases or spending cuts, would "represent an added drag on the weak economic expansion," the CBO noted in its report.

"The resulting weakening of the economy will lower taxable incomes and raise unemployment, generating a reduction in tax revenues and an increase in spending on such items as unemployment insurance," the report said.

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