Budget office warns of recession conditions next year if stalemates aren't resolved
CREATED Aug. 22, 2012
WASHINGTON (AP) - The consequences could be severe, according to the Congressional Budget Office, if Congress can't find a way to keep tax cuts from expiring and to keep automatic spending cuts from taking effect in January.
The nonpartisan budget analysts say unless there are steps to avoid those developments, there will be economic conditions next year "that will probably be considered a recession."
There's a stalemate on the tax cuts because President Barack Obama wants to renew the cuts for all but the wealthy, while Republicans are demanding that tax cuts be extended for everyone. On the budget, there's been no progress on a debt-reduction agreement that would keep the automatic spending cuts from taking effect.
The analysts say if the tax cuts expire and the spending cuts take effect, the economy would contract by 0.5 percent. That's a gloomier projection than the budget office made earlier this year, when it envisioned slight growth under that scenario.
They say unemployment would rise to around 9 percent by late next year if the standoff persists. The head of the budget office tells reporters that failing to resolve the stalemate would cost 2 million dollars.
Both sides are blaming the other. The White House says the Republican-led House needs to approve tax cuts for all but the highest earners. The House's second-ranking Republican says it's the president who has to give in.