(By Capital Spectator) Does the government that governs least also govern best? The famous quote will be put to the test if Congress and the White house don't resolve the "Taxmageddon"
train wreck coming our way. What's at stake? Perhaps economic growth,
according to a new report from the Congressional Budget Office: "Economic Effects of Reducing the Fiscal Restraint That Is Scheduled to Occur in 2013."
Unless the government acts between now and the end of the year, a
combination of expiring tax cuts and broad reductions in spending will
kick in automatically. It doesn't take a genius to recognize that this
wave of fiscal change, if implemented overnight in one fell swoop, could
be toxic for a fragile economic recovery. The CBO report says as much:
If current law is allowed to unfold unchanged, the CBO expects that
the economy will retreat at an annual real (inflation-adjusted) rate of
1.3% in the first half of 2013—a decline that "would probably be judged
to be a recession" by the National Bureau of Economic Research. In that
case, overall growth for 2012 is expected to be a shallow 0.5%.The CBO
engages in a bit of scenario analysis:
What would happen if lawmakers changed fiscal policy in late
2012 to remove or offset all of the policies that are scheduled to
reduce the federal budget deficit by 5.1 percent of GDP between calendar
years 2012 and 2013? In that case, CBO estimates, the growth of real
GDP in calendar year 2013 would lie in a broad range around 4.4 percent,
well above the 0.5 percent projected for 2013 under current law.
Ultimately, there's the fine line between balancing short-term
economic challenges and promoting long-term fiscal rectitude. As the CBO
However, eliminating or reducing the fiscal restraint scheduled to occur next year without imposing comparable restraint in future years would
reduce output and income in the longer run relative to what would occur
if the scheduled fiscal restraint remained in place. If all current
policies were extended for a prolonged period, federal debt held by the
public—currently about 70 percent of GDP, its highest mark since
1950—would continue to rise much faster than GDP.