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1 watching you tiny alien kittens are  Mon, Nov 26, 2012 10:10:55am

If Congress does nothing and allows all of the "fiscal tightening" measures to go into effect here is what the CBO says will result...

According to CBO’s projections, if all of that fiscal tightening occurs, real (inflation-adjusted) gross domestic product (GDP) will drop by 0.5 percent in 2013 (as measured by the change from the fourth quarter of 2012 to the fourth quarter of 2013)—reflecting a decline in the first half of the year and renewed growth at a modest pace later in the year. That contraction of the economy will cause employment to decline and the unemployment rate to rise to 9.1 percent in the fourth quarter of 2013.
[Link: www.cbo.gov...]

So yes, recession and higher unemployment. I'm still looking at the full PDF version trying to figure out how they conclude that the GDP would begin to rebound towards positive growth again within the year. That seems overly optimistic to me considering how slow growth already is. Still they conclude that under this scenario it would take until 2018 for unemployment to drop back to 5.5%.

However if Obama were to get what he originally said he wanted...

Extending all expiring tax provisions other than the cut in the payroll tax and indexing the AMT for inflation—except for allowing the expiration of lower tax rates on income above $250,000 for couples and $200,000 for single taxpayers—would boost real GDP by about 1¼ percent by the end of 2013. That effect is nearly as large as the effect of making all of those changes in law and extending the lower tax rates on higher incomes as well (which CBO estimates to be a little less than 1½ percent, as noted above), primarily because the budgetary impact would be nearly as large (and secondarily because the extension of lower tax rates on higher incomes would have a relatively small effect on output per dollar of budgetary cost).

Note that if you read that CBO report carefully it is actually suggesting two scenarios that achieve the highest growth of the GDP. The first is a two year extension of the Bush tax cuts, except for the top bracket, and a like delay of any fiscal tightening measures resulting in 2.7% growth. The second is the same but also extends the payroll tax cut and emergency unemployment benefits resulting in 3.4% growth.

Also note that they state that allowing taxes to rise on the top bracket would only knock less than .025 off of the maximum possible GDP growth. So much for the "Hurting the Job Creators" mantra, the numbers simply don't back that claim up.

However as far as the budget is concerned allowing the top bracket cut to expire does almost as much good by itself as all the other proposed fiscal measures do when combined. How is that possible? It is because the Government gets that money without any corresponding increased costs to itself. No large surge of unemployment benefits, no reduced tax base due to recession, no increase in welfare and medical benefits to the poor, that's how.


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 Frank says:

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