'Fiscal cliff' cuts, tax hikes would trigger recession: US Budget Office
Strict 'fiscal cliff', tax increases and federal spending cuts set for the end of the year would send the economy back into recession and cause a spike in the jobless rate to 9.1 percent by next fall, congressional budget analysts has warned.
The tax and spending changes would cut the federal deficit by 503 billion dollars through next September, the Congressional Budget Office report said.
The report said that the adjustments also would cause the economy to shrink by 0.5 percent next year.
The report comes as newly re-elected President Barack Obama and Congress seek ways to avert or at least ease possible damage from the scheduled changes.
According to Fox News, the new study estimates that the nation's gross domestic product would grow by 2.2 percent next year if the Bush-era tax rates were extended and would expand by almost 3 percent if Obama's 2 percentage point payroll tax cut and current jobless benefits for the long-term unemployed are extended.
The largest component of the changes, dubbed a 'fiscal cliff' to be avoided if possible, comes with the expiration of tax cuts enacted in 2001 and 2003 and extended two years ago after Obama's drubbing in the 2010 midterm elections, the report said.
The spending cuts would be imposed as a consequence of the failure of last year's deficit-reduction "supercommittee" to reach agreement.
"Today's CBO report underscores the need to prevent the so-called fiscal cliff from harming American families and businesses, and to instead enact a balanced, long-term deficit reduction plan," top House Budget Committee Democrat Chris Van Hollen of Maryland said.
"We must take a balanced approach that includes cuts to spending and cuts to tax breaks for millionaires and special interests that we can no longer afford," Hollen added.