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