Yesterday, the Congressional Budget Office (CBO) reported that without a doubt, America will have a fresh recession next year unless Congress and the President prevent it.
We are facing the largest tax increase in history—Taxmageddon, scheduled to take effect January 1—and what experts are calling a “fiscal cliff” of sharp and unforgiving budget changes that will send the country spiraling downward. Congress and the President have the power to prevent this, and when the August congressional recess is over, that is exactly what they should do.
In its new report, the CBO said that if Congress does not act, it’s not economic growth we should be worried about, because the economy will actually shrink next year. It will shrink by 0.5 percent, and the unemployment rate will spike to 9.1 percent. As Heritage’s J.D. Foster explains:
Forget percentages—what does this mean in actual jobs lost if President Obama and Congress fail to act? It means roughly 1.6 million more Americans will be out of work—on top of the 12.8 million who already want to work but can’t find jobs.
Preventing Taxmageddon and the fiscal cliff are necessary just to keep the economy from taking a nosedive. The status quo isn’t attractive, but Congress certainly shouldn’t make things worse. If Congress moves to prevent the nosedive, the CBO projects that the economy will grow only slightly next year, at an anemic 1.7 percent, and the unemployment rate will remain stuck around 8 percent.
Why? The CBO report makes it clear: Our spending problem continues, and it’s driven mainly by the three major entitlements: Medicare, Medicaid, and Social Security. Spending on these programs will outpace tax revenue over the next decade.
Heritage’s Patrick Louis Knudsen points out several other sobering projections from the CBO report:
- For the fourth year in a row, the federal government in 2012 will run a budget deficit exceeding $1 trillion.
- The deficit is already $49 billion higher than CBO’s January estimate.
- Debt held by the public this year will reach $11.3 trillion by October, roughly three-fourths of the entire economy.
In the middle of this fiscal disaster, the government has no budget. That’s right—Congress has abdicated its responsibility for producing a budget for the country. The Senate failed to produce a budget for the third year in a row. Congressional leaders keep passing temporary stopgap bills to continue funding government operations, but this is unacceptable. They have to take this seriously. Perhaps the CBO’s dire warnings will give them the sense of urgency they are missing.
Once Congress gets back to the business of budgeting, it must address the runaway entitlement spending that is driving the never-ending budget crisis.
We often say “It is time for Congress to act.” In the case of Taxmageddon and the fiscal cliff, the CBO has added a red exclamation point. The consequences are clear: About 1.6 million American jobs hang in the balance. A recession is imminent. And if they allow it, it will be squarely on the shoulders of this Congress and this President.