For the last several months, Republicans and Democrats have been posturing their way towards the the edge of the so-called "fiscal cliff," a mix of nearly $500 billion in tax hikes and spending cuts set to go into effect in January. It was thought that flying off this cliff would cause a "modest recession" in the first half of 2013, but it turns out, the consequences may be significantly worse.
According to a new analysis by the non-partisan Congressional Budget Office, the country will be plunged into a severe recession if Congress fails to act on the fiscal cliff, The Washington Post's Lori Montgomery reports. Per Montgomery:
The massive round of New Year’s belt-tightening ... would disrupt recent economic progress, push the unemployment rate back up to 9.1 percent by the end of 2013 and cause economic conditions “that will probably be considered a recession,” the nonpartisan Congressional Budget Office said.
The outlook is considerably darker than the forecast the agency released in January, when CBO predicted that the fiscal cliff would trigger a modest recession in the first half of 2013, followed by a quick recovery.
While that's a scary thought, it's not something that will necessarily spur politicians to action. First, this is all set to happen after the election so it doesn't pose as an immediate obstacle for either President Obama or Mitt Romney. Secondly, with a Democratically-controlled Senate and a Republican-controlled House, the politics of passing a bill to stave off the threat isn't adding up yet. (It could be resolved during the lame duck sessions according to some analysts.) Thus far, Democrats have used the fiscal cliff as leverage against the Republicans, threatening to let the tax hikes and spending cuts go into effect unless Republicans agree to raises taxes on the very wealthy. The CBO just made that gambit a tad riskier, giving Republicans ammo to say the other side is taking the economy hostage.