Congressional Budget Office warns recession looming if Congress doesn't act on "fiscal cliff"

(CBS News) If Washington doesn't reverse the several fiscal policy changes set for the end of the year, the nation could head into another recession in 2013, the nonpartisan Congressional Budget Office said in its latest economic report.

A whole bevy of policy changes are set to go into effect on Dec. 31 and Jan. 1, 2013, including the $1.2 billion in across-the-board spending cuts that Congress agreed to in 2011 after the bipartisan congressional "supercommittee" failed to come up with its own deficit-shrinking plan. The much-debated Bush-era tax cuts are also set to expire.

Those policy changes would have the intended effect of reducing the deficit -- by fiscal year 2013, the deficit would be nearly $500 billion less than the shortfall in 2012, the CBO reports.

However, the CBO also expects the belt-tightening to bring down real gross domestic product (GDP) by .5 percent between the fourth quarter of 2012 and the fourth quarter of 2013. Additionally, it predicts that unemployment would rise to about 9 percent by mid-2013.

The CBO report drew strong reactions from both the White House and Republicans. President Obama's press secretary released a statement strongly rebuking Republicans for holding the extension of the Bush-era tax cuts for the middle class "hostage."

President Obama has asked Congress to extend the tax cuts on income under $250,000, but Republicans want to extend all the tax cuts -- including those for Americans making over $250,000.

"Instead of doing the right thing, Republicans in Washington have chosen to double down on the same failed policies that led to the economic crisis in the first place," White House press secretary Jay Carney said in the statement. "They're willing to hold the middle class hostage unless we also give massive new tax cuts to millionaires and billionaires - tax cuts we can't afford that would do nothing to strengthen the economy."

Carney also said Congress "needs to act right now" to replace the $1.2 billion in "arbitrary spending cuts" with higher taxes on wealthy Americans and large corporations.

The Romney campaign, meanwhile, called the CBO report "another indictment of President Obama's economic policies that have resulted in overspending, increasing debt, and a growing financial burden on the next generation."

Romney spokesperson Amanda Henneberg pointed out that the CBO predicts unemployment to remain above 8 percent through the end of this year, regardless of how Congress addresses the looming policy changes.

In addition to the $1.2 billion in cuts and the Bush-era tax cuts, Congress needs to address several other policy changes before the year is up: the expiration of emergency unemployment benefits, the expiration of a 2 percent payroll tax cut, scheduled reductions in Medicare payments to doctors, and other changes.

Even if Congress managed to address all of those issues and keep current policy in place, the economic outlook wouldn't be very strong. According to the CBO, in that scenario, unemployment would remain around 8 percent by the end of 2013.

[RollotheNorman]

Bad news folks, Congress won't act: It's chock full o' obstructionist RepubliCONs. They support the Hoover budget.

[wfw3536]

I hope Obama supporters are reading the CBO report as this is what we will be looking at with another 4 years of Obama. Just today there was another report on the Hedge Funds saving their cash for a second recession in our country and a melt down in Europe.

[benunhappy]

Corporations have been ordered not to hire for the last 3 years by the GOP. This is the GRAND OLD PARTY THAT USED TO BE FOR THE PEOPLE, now it's just for the wealthy. The GOP wants buisnesses to hire only part time at minimum wage which is not enough to care for a family and the GOP wants to give MORE to those who are greedy wealthy unsensitive money mongrels and all this after The GOP and the REPOublicans under bush gambled our money and lost, after the workers of America BAILED out Wall Street and OLE MITT won't release his tax returns because Bain Capital and Mitt were behind the melt down so thier inside trading could make them even richer.Transparency and Honesty is what America needs. America's economy would have been in a little better if the do nothing congress had only compromized for the AMERICANS they are supposed to be helping. Us peon's can't give these REPOublicans anything near what these rapist of AMERICANS can give in money thats why Timothy Dolan backs the GOP because the republicans like the child-raping Priest want your money and want to be able to rape us and say I'm sorry forgive me and the GOP thinks we are all ignorant and will follow them as the blind sheep faith groups(largest money swindlers in the world) have made us.

[nygurl1]

WTG Zion!

[UForgotPoland]

The Democrats and Republicans in Congress are just jokes, unfortunately most of you clowns will vote your congressman/women in for another term and then place the blame for their inaction and corruption on the President.

[nygurl1]

Time to vote out ALL reps and any dems in the same office for more than 2 terms. Unless they are doing a terrific job, pick new ones!

[sweetcakesmaria]

Our election process is a total failure and needs reorganization. Our two party system is obsolete. They are controlled by special interest groups which doesn't have the interest of the people at heart. Purge the current two party system in favor of a simple system whereby the candidates with the most popular votes wins. Whether it's for President or for Congress, the Candidates with the most popular votes gets elected. The whole process will be simplified and we will never have the type of gridlock in our Government that currently exist.

[sweetcakesmaria]

This is all a game with the Republicans. The Republican led house will sit on their hands and do nothing and when the country slide into a recession, they will blame it all on President Obama.

[cubscout09]

The solution is simple, but, painful. If you Representative didn't vote for Bowles-Simpson, vote for someone who will.

[hhandyman]

they said tax breaks for all up to 250 thousand in income only those with more than a quarter million get a tax increase on all above the quarter million Honestly income tax should be the same whether its casual income or earned income the total should be taxed at 10 percent for the first 250 thousand and 25% for any over 250 thousand and that includes all citizens corporate citizens as well as those that live and breath.. since The Romney said they were citizens they should be taxed as such.. but Not be able to vote in elections since all the principles (owners director and employees) that are registered can vote.

[nygurl1]

It took me 3 tries to understand that.... You really need to use some commas and periods.....I'm still confused.

[John_Swift]

Everyone seems to agree that it's everyone else's fault. But you see, a national economy is exactly the same as a household budget, in that when Mom and Dad are no longer generating any income, and they can't seem to do anything but fight and blame each other, the only sensible thing left to do is arbitrarily enter into a murder-suicide pact that takes out the whole family on one fell swoop.

[wayneonly]

Everybody wants to blame the recession on President Obama, but the real culprit is the demise of the middle class. As the middle class shrinks, and the income of those still considered middle class remains stagnant or shrinks, the middle class has less money to spend on nonessentials items. This causes a decrease in sales and manufacturing, which causes manufacturing plants and businesses to lay off people. This also lowers the tax revenues collected by both federal and state governments which causes further unemployment and cuts in services. When you look at this recession logically, the only answer is how do we expand the middle class and get THEM back in the market place? Will "trickle down" economics accomplish this? I think not. Will giving the rich tax breaks work? Will the rich invest in new business or expansion of existing businesses if the market (the middle class buyers) is not there? That would be foolish on their part, and I don't believe they are that foolish. (I believe they are foolish for not looking to the future and working to rebuild the middle class [their potential customers]). Short term GREED instead of long term profits. With this in mind do the proposed Romney/Ryan/GOP tax breaks make sense? They won't help balance the budget, they won't increase business opportunity, they won't help lower unemployment (in fact they will increase unemployment). All they will do is give the super rich more money to invest in Wall Street or hide in offshore bank accounts.

But the biggest problem is a Congress (both Republicans and Democrats) who have held the middle class and any legislation for progress hostage for "party politics". We (the voter) need to clean house and let Congress know that we will no longer stand for "politics as usual" and we expect at least some honesty and integrity from our Congresspeople. We need to let them know that we expect a Congress that works for the good of the REAL American people instead of the "big money" campaign contributors and the "party ideology. WE THE PEOPLE NEED TO LET CONGRESS KNOW WE DEMAND REPRESENTATION IN WASHINGTON. We (the voter) are the largest lobby in the nation, yet we aren't even represented in Congress. IT IS TIME THAT CHANGES. Voters, stop being duped by "party politics" and start demanding OUR right to representation in Congress.

[marychgo]

I'm having trouble, Wayne, coming up with a single instance when Democrats in Congress "have held the middle class and any legislation for progress hostage." I can come up with a number of instances when Republicans have done that, but I honestly can't think of one where Democrats have. Can you enlighten me?

[matt6052]

Romney's first order of business will be to diffuse the fiscal bomb that Obama timed to go off on New Year's Day. Fortunately, congress can turn the clock back very easily and retroactively cancel the policy. Romeny believes his first act as president will be to dismantle ObamaCare. In fact, it will be to dismantle the fiscal bomb that was set to go off in the event that the incumbent lost the election.

[marychgo]

The Republicans control the House and the Republican minority in the Senate can (and does) filibuster any bill it doesn't like. So explain to me how it's the President who's responsible the "fiscal cliff" that results from bills that come out of Congress....