The so-called fiscal cliff may take a bigger toll on the U.S. economy than the Congressional Budget Office projects, according to David J. Stockton, a senior fellow at the Peterson Institute for International Economics and former top economic forecaster at the Federal Reserve.
The three-year-old U.S. expansion faces headwinds from a slowing global economy and the risk lawmakers will fail to avert $607 billion in federal tax increases and spending cuts slated to take place next year.
Reaching the fiscal cliff will probably tip the world’s largest economy into a recession, with gross domestic product shrinking 0.5 percent in 2013, the CBO said on Aug. 22.
“Going over the fiscal cliff is going to be much more costly than even the CBO’s analysis suggested,” Stockton said at a conference held by the Peterson Institute in Washington today. “I actually don’t see much benefit in going over the fiscal cliff.”
Congress lined up the spending cuts in 2011 as part of an agreement to raise the federal debt ceiling and cut future deficits. After President Barack Obama’s re-election, Vice President Joe Biden said he had been making “a lot of phone calls,” and voiced optimism that Republicans would cooperate on a compromise to avert the fiscal cliff.
At a news conference on Capitol Hill Wednesday, Republican Speaker of the House John Boehner said all sides are “closer than many think” to a U.S. tax-code overhaul.
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