WASHINGTON — The fiscal cliff could trigger another recession in the U.S. next year and cause the unemployment rate to jump to 9.1%, a new Congressional Budget Office report warned.
The nonpartisan CBO also said that the gross domestic product would be cut by 0.5% next year if Congress and the Obama administration fail to come to an agreement to avert the so-called “fiscal cliff” ¬¬¬¬-- the $600 billion in tax increases and $1 trillion in automatic across-the-board spending cuts that are slated to go into effect early next year.
In a 16-page report published Thursday, the CBO outlined in detail the economic effects the fiscal policies would have on the U.S. economy.
Earlier this year the CBO warned that the U.S. could go back into a recession if nothing was done to avoid the fiscal cliff.
However, the CBO added that after 2013, economic growth will pickup and the labor market will strengthen with the jobless rate dropping to 5.5% by 2018.
The new report estimates that extending all expiring tax provisions enacted in 2001, 2003 and 2009, as well as indexing the alternative minimum tax to inflation, would boost the nation’s gross domestic product by a little less than 1.5% by the end of next year.
Republican and Democratic leaders who have been involved in previous fiscal policy negotiations have indicated in recent days that their party is willing to compromise to avoid the fiscal cliff.