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Mail
Magazine 24
CBO
Warns: President Obama and Congress Risk Triggering Another Recession
by
J.D. Foster, Ph.D.
About
1.6 million American jobs hang in the balance. That is the clear
implication of
analysis contained in the annual budget
update by the Congressional Budget Office (CBO).
Along
with all manner of dire and dreary budget data reflecting President
Obama’s
budget and economic policies to date, CBO provides its assessment of
what would
happen if the President and Congress sit on their respective hands and
fail to
defuse the threats of Taxmageddon and the fiscal cliff. The answer is
fairly
simple: recession.
As
CBO so diplomatically put it, “such fiscal tightening will lead to
economic
conditions in 2013 that will probably be considered a recession.”
Taxmageddon
is the $500 billion tax hike slated to take effect on January 1, while
the
fiscal cliff consists of Taxmageddon plus various spending
reductions—among
them the sequestration left over from the disastrous negotiations that
led to
the Budget Control Act in 2011
According
to CBO’s analysis, if Congress defuses Taxmageddon and the fiscal
cliff, then
the economy will grow at a tepid 1.7 percent in 2013 and the
unemployment rate
will remain stuck around 8 percent. But if President Obama and Congress
play
chicken with Taxmageddon and fail to act, then the economy will
contract by
about 0.5 percent and the unemployment rate will shoot up to 9.1
percent, about
halfway back to the peak from the past recession.
Forget
percentages—what does this mean in actual jobs lost if President Obama
and
Congress fail to act? It means roughly 1.6 million more Americans will
be out
of work—on top of the 12.8 million who already want to work but can’t
find
jobs.
Just
about every relevant school of economics, from the President’s pure
Keynesianism to supply-side and neoclassical persuasions, tells much
the same
tale on net: Raising tax rates on a weak economy produces a weaker
economy.
It’s not terribly complicated.
The
good news is that the House of Representatives has passed a bill
preventing a
big part of Taxmageddon. The Senate has passed a much less adequate
bill. These
form the basis of a good final product.
The
other good news is that Congress will have time after the August recess
to
avoid the economic peril that CBO projects. Talk of 2013 and tax reform
is
dangerous, and waiting on a post-election lame-duck session even more
so, as
the policy outcome would likely be worse. Both likely assure a
recession, for
which this Congress and this President will unequivocally be at fault.
President
Obama and Congress failed at
their summer job of preventing
Taxmageddon, but
there is still time—just not much.
Source:
blog.heritage.org
Read
this and other articles at Mail Magazine 24
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