Nearly six million jobs through 2014 could be erased if Congress doesn't do something to avert the package of tax hikes and spending cuts set to hit the economy on January 1, according to a new report, setting America back economically as much as a decade.
The National Association of Manufacturers paints a grim picture of the consequences of falling off the so-called "fiscal cliff" in the report released today. Already this year, one million jobs have been lost as employers brace for the coming economic jolt, NAM says. The loss of six million jobs would send the unemployment rate higher than 11 percent. Currently, the jobless rate stands at 7.8 percent.
Furthermore, NAM reports, if Congress doesn't avoid the fiscal cliff, the economy will lose 12.8 percent of the average annual real gross domestic product it could have attained with moderate growth. Individual households would take a hit as well, with real personal disposable income shrinking almost 10 percent by 2015. NAM says it would take most of the decade for the economy and employment levels to recover, delivering "a substantial blow" to the nation's long-term economic potential.
"It is clear from the report that a fiscal shock of this magnitude is unprecedented for the United States and will be similar in impact to some of the 'big bang' fiscal adjustments experienced by developing nations and the austerity programs in several euro-area economies," the report's executive summary says. "If the fiscal contraction does happen, the economy will almost certainly experience a recession in 2013 and significantly arrested growth through 2014."
NAM's prediction is more dire than the forecast set by the nonpartisan Congressional Budget Office earlier this year, which said that the fiscal cliff would cause unemployment to reach nine percent by mid-2013.
But while the predictions may vary, the response from politicians has been fairly consistent: The fiscal cliff must be averted. President Obama in the final presidential debate said that the fiscal cliff "will not happen," though he gave no indication of how he planned to work with Congress to avoid it. His unequivocal statement surprised some politicians, since the White House has suggested Mr. Obama would use the threat of the fiscal cliff as a bargaining chip against Republicans in order to pressure them into accepting marginal tax rate increases on the wealthiest Americans. Republicans have said they're ready to stand firm against any tax hikes.
The fiscal cliff includes a series of tax increases and spending cuts that would lower the deficit by $500 billion. It includes the expiration of the 2001 and 2003 tax cuts and the expiration of the payroll tax holiday that Mr. Obama instituted. On top of that, $1.2 billion in cuts to both defense and non-defense programs are set to kick in on January 1 unless Washington acts as a result of the "sequestration" deal put in place when the debt limit was raised.