Analysts: New recession likely without budget accord
WASHINGTON (AP) - A new recession is likely if a stalemate over tax and spending cuts continues between Democrats and Republicans, according to fresh, dire projections by the nonpartisan Congressional Budget Office.
In its annual summertime report, the budget office said Wednesday that letting decade-old tax cuts expire and sweeping spending cuts occur in January - which will happen without congressional action - "would lead to economic conditions in 2013 that will probably be considered a recession."
If that happened, the economy would contract by 0.5 percent - a gloomier projection than the budget office made earlier this year when it envisioned slight growth under that scenario. Unemployment would rise to around 9 percent by late next year if the standoff persists, the analysts said.
The budget office's latest warning came amid a presidential and congressional election year in which neither President Barack Obama nor congressional Republicans have shown any signs of giving ground in their protracted battle over taxes, spending and the budget. The lethargic economy and massive federal deficits are top-flight issues in this year's campaigns.
Obama wants to renew expiring tax cuts for everyone except individuals earning over $200,000 and couples who bring in above $250,000. Republicans are demanding that all tax cuts be extended. The two sides also have made no progress over how to prevent budget-wide spending cuts from taking effect. These automatic cuts were sat in motion by the failure of lawmakers last year to reach a bipartisan debt-reduction agreement.
Letting the tax cuts continue and preventing the spending cuts from taking effect would leave a deficit next year of just over $1 trillion. If the reverse occurs, the shortfall would be $641 billion - in effect sucking roughly $400 billion out of a U.S. economy that is already struggling.
Though continuing the tax cuts and blocking the spending cuts would produce higher economic growth over the next two years, "it would reduce output and income in the longer run and is ultimately unsustainable," the budget office warned.
Wednesday's report projected a $1.1 trillion federal deficit for 2012, the fourth straight year the government's shortfall will exceed $1 trillion.
It also envisions an economy recovering at only a modest pace the rest of this year, growing at an annual rate of 2.25 percent.
In its annual summertime report, the budget office said Wednesday that letting decade-old tax cuts expire and sweeping spending cuts occur in January - which will happen without congressional action - "would lead to economic conditions in 2013 that will probably be considered a recession."
If that happened, the economy would contract by 0.5 percent - a gloomier projection than the budget office made earlier this year when it envisioned slight growth under that scenario. Unemployment would rise to around 9 percent by late next year if the standoff persists, the analysts said.
The budget office's latest warning came amid a presidential and congressional election year in which neither President Barack Obama nor congressional Republicans have shown any signs of giving ground in their protracted battle over taxes, spending and the budget. The lethargic economy and massive federal deficits are top-flight issues in this year's campaigns.
Obama wants to renew expiring tax cuts for everyone except individuals earning over $200,000 and couples who bring in above $250,000. Republicans are demanding that all tax cuts be extended. The two sides also have made no progress over how to prevent budget-wide spending cuts from taking effect. These automatic cuts were sat in motion by the failure of lawmakers last year to reach a bipartisan debt-reduction agreement.
Letting the tax cuts continue and preventing the spending cuts from taking effect would leave a deficit next year of just over $1 trillion. If the reverse occurs, the shortfall would be $641 billion - in effect sucking roughly $400 billion out of a U.S. economy that is already struggling.
Though continuing the tax cuts and blocking the spending cuts would produce higher economic growth over the next two years, "it would reduce output and income in the longer run and is ultimately unsustainable," the budget office warned.
Wednesday's report projected a $1.1 trillion federal deficit for 2012, the fourth straight year the government's shortfall will exceed $1 trillion.
It also envisions an economy recovering at only a modest pace the rest of this year, growing at an annual rate of 2.25 percent.
Oh please gubermint save us!!!! LOL Whatever.
How can it be a "new" recession, when we are still IN a recession (although there are those who call it a Depression, equivalent to the 1930's...). They may have *claimed* it was over but it is not & never has been over.
As I have not seen this said yet let me say it... DUH! .... honestly if it takes a default, another recession and credit downgrade to get DC and the TeaParty SOB's to shut their yappers about the rich 'trickle down' affect I say bring it the hell ON! Anyone in office seeing over this will get voted out and hopefully that will let the public clean house and senate and put in some more independant canidates who are not tied to the BS the present two party system allows!
Here's the other half of the analysis that the lapdog media failed to report; even with a budget accord, there is still a significant risk of recession.Â
I am not surprised that the feud between the Congressional Democrats and Republicans is going to hurt average Americans, again. The career politicians in Washington D.C. have not given a rat's pattoote that their business as usual partisian deadlocks are destroying the Nation and has been for years upon years.
If the deficit is really the most important thing right now, we should let the tax cuts expire AND force the reductions INCLUDING DOD. Ok, the economy will take a hit, but lets face it, it sucks anyway except for the very wealthy. Lets tighten our belts and attack this debt.
@Hagar Unfortunately, the deficit is NOT really the most important thing. I believe that JOBS are the most important thing. As long as we have people working, they should be paying taxes. People who are working and making money, spend it and that keeps the economy moving. When people lose thier jobs, they dont pay taxes (on money they dont make) and worry about trying to make ends meet on money they get from the government.Â
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Whatever helps to create long term job growth will benefit us the most. Beyond that, spending less (anti-democrat) and taxing more (anti-republican) is unfortunately the only way to fix our deficit. The problem will be getting our leaders to put aside party politics and do what is best for America.Â
 @scared_citizen  @Hagar Oh I agree. I was being facetious about the debt. The right wingers say no new taxes no matter what and the left wingers say no reductions in entitlements no matter what. But you are right. Jobs, Jobs, Jobs. And not must moving a pile of money around and taking a cut. And not flipping burgers or cleaning floors in nursing homes. I am talking about family wage jobs in manufacturing. We need tax incentives to bring those jobs back home where members of both parties encouraged them to leave through NAFTA, etc. A middle class family wage man should be able to support his family, go on vacation annually, and help put there children through college. They could do that in the 50's, 60's, and 70's. Of course, CEO's only made about 40 times the average wage of their plant employees. Now it is 100's of times more than their minimum wage employees. Great job, politicians.
Anyone else find it funny that they say there will be another recession if this isn't done? Â Because I sure feel like I'm still stuck in the last one.
The Bush tax cuts have been in effect for over ten years, and I am still waiting for a bunch of money to trickle down to me. Maybe they should not tax the rich at all? Just think of all the money that would trickle down. Still waiting.
Having two wars going and not asking the people to pay for them could be called "Legitimate Rape".
@rockguy
The way I look at it is. Two wars= tons of military spending to a select group of contractors.  Now before I say what Iâm about to, I make my living off of stimulus, but the Stimulus dollars are being misspent as well. Tons of money being spent by both sides that only make it to a few. I would love to give the whole break down of how âxâ amount of dollars given to the DOE, then passed along to Non profit Affirmative action groups then dealt out to a hand full of  non profit middle men then to the actual contractors didnât really create jobs it was a giant waste of money.Â
 @Kodiak Two wars also = tons of money spent in/on other countries.
I'd rather trim our military back by half and use that difference to partially pay down debt, and to improve our own infrastucture in our own country. Â
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And yes, I understand cutting military by half sound scary, but right now we spend almost as much as the rest of the world combined. Right now we spend 5 times what China spends, and 10 times what Russia spends. I I think if we wonly  spend 2.5 times as much as China and 5 times as much as Russia, we will still be able to "protect ourselves" which is what our military should be doing.
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And yeah we can cut a lot back just be getting rid of many of our over seas bases.Â
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http://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures
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And that is just DOD spending. Factor in intelligence, and foreign aid spending, and that number quickly climbs to over 1.2 trillion
 @T H I S I do agree we need to focus more efforts here at home, but unfortunately we are committed in some areas more than others and we need to keep a presence there. If anything the E.U needs to stand up and show they can protect themselves instead of depending on the US to have so many bases there. We shoudl be there in a supportive role but the E.U should be watchign more of their own house.
 @FreespeechÂ
"The worst thing we can do is relax too much and allow countries to commit more attrocities even worse than the one that happened in Bosnia for one example"
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this is going to sound bad, but I am just going to say it
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I do not care about what happened in Bosnia. Sure, it was bad, but we have problems here in our country. We keep finding problems around the world to solve instead of dealing with our own issues. We are kind of like that lady at church that will make sure everyone else is doing right, while not worrying about her own issues.
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 @Kodiak I am in no means disagreeing with you we do need to protect ourselves but we do that by keeping our presence known in a region. Our Pacfic Fleet by Japan is a firm message to East Asia that we can reach them even from way over where the US is if they step out of line.
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The worst thing we can do is relax too much and allow countries to commit more attrocities even worse than the one that happened in Bosnia for one example ... it is nice to want to pull back and take care of ourselves but I still believe we can accomplish our goals of maintaining stability with less of our money being spent elsewhere in the world. We are still strongly able to respond to threats from here and we are very advanced over here but it does cost money to stay on top. You can and should expect China to continue to grow and join us in the superpower category if I had to guess I would put it in the next 20 years....they just have the raw population and it is obvious they got left out of the 20th century expansion the US enjoyed and will eventually want to flex their muscles too... so we have to make sure we do not let up too much else we could have a repeat of the frightning modern day cold war and everyone has heard a version of the saying ... those who do not learn from history are doomed to repeat it.... it is the repeating part we have to ensure does not happen.
@Freespeech @T H I S I get what you are saying, but at some point we as a country need to focus on ourselves. We have all the means necessary to do so. Why is it we need to be the world police? We are protecting oil coming out of the middle east bound for china, we fund/ protect oil coming out of Venezuela that is bound for other countries. I understand foreign policy and why we need international trade, but we flex everywhere we go in this world. Can you imagine if we were like Dubia and focused most of our taxable assets back to âour peopleâ what our country would look like. We are losing a grip as a super power, and we are only a shell of what this county used to be. We need to rein in the spending and spend it on American Citizens for education and business growth. All of this is a pipe dream so I guess Iâm just wasting typing time.Â
 @T H I S  @Kodiak Not necessarily about removing the bases as much as making the countries that have us there pay the darn bill for that is better! Our being nearby is a deterance and I do believe if we pulled out of some areas China, North Korea, or Iran will become much more aggressive as seriosuly if we pull out and they invade an ally country of ours... would we fight them .. or would we debate and shake our finger at them instead?... but it is for sure present level of defense spending is unable to maintain!
 @Kodiak I know, and I was just expanding on your point about wasteful spending, which in my opinion is largely defense.
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We keep saying "if we cut defense, we won't be able to protect ourselves"Â which is BS.Â
And "If we cut military spending, the economy will collapse,"Â which while true, is BS because we can just make a better use of that funding to improve our country. Plus, spending in infrastructure has shown to have greater economic impacts than spending on the military.
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@T H I S Please keep in mind I was speaking only to the DOE not the DOD.
@T H I S And THIS my friend we agree. We spend way too much money overseas and in a couple connected countries I can think of.
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 @rockguy I heard that if we tax the rich people, they will take their money and leave. Which is different from today where they just take their money to overseas banks and stay and use our nations resources.
FTA:
"Obama wants to renew expiring tax cuts for everyone except individuals earning over $200,000 and couples who bring in above $250,000"
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So he wants to let the tax cuts continue for those who would benifit, but those who can afford to pay more without impacting their spending habits should pay more to help offset the deficit.Â
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But of course the GOP will block this. Anything to crash the economy so they can make Obama look bad.  Because when I think patriotism.. oh yeah, I think about republicans crashing economies, sending out children off to illegal ways, and transvaginal wands.
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 @T H I S They made it very obvious this was their goal when they started talking present campaigns two years ago... they did not want to pass anythign favorable over the last two years to do as much damage to Obama as they could that is very obvious! They should not have compromised with them on the budget deal becuase all they managed to do was kick the can down the road to do it all over again this fall/winter... I seriously hope they do not agree so the mandatory cuts take affect and do so immediately!