CBO: Fiscal Cliff Costs

The nonpartisan Congressional Budget Office (CBO) on Thursday laid out in substantial detail the costs of not dealing with the so-called "fiscal cliff."

CBO had already estimated that going over the cliff would spark a recession, while simply voiding the tax and spending increases would add trillions to the debt.

But a new study breaks down the costs and benefits of allowing various parts of the fiscal cliff to remain in place.

Unemployment would rise from 7.9 to 9.1 percent by the end of 2013 if the nation went over the cliff.

The fiscal cliff consists of a set of tax hikes and spending cuts all set to be implemented in January.

Tax rates ushered in by former President George W. Bush are set to expire at the end of the year, which would raise rates on most households and businesses. A payroll tax cut in place for two years is also set to expire, and Congress has yet to pass legislation to prevent millions of people from being hit by the Alternative Minimum Tax.

Spending cuts triggered by last summer's debt deal are also set to begin in January.

The report's estimate that preventing tax hikes set to kick in on Jan. 1. will add or save 1.8 million jobs next year.

Democrats will point out that allowing tax rates to rise for households with annual incomes above $250,000 but extending rates for other people would save 1.6 million jobs — nearly as many as if all the rates were extended.

Senate Majority Leader Harry Reid's (D-Nev.) office immediately highlighted through Twitter the fact CBO says growth is only reduced by .1 percent if the tax breaks for the wealthy are ended
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Republicans, meanwhile, focused on the job losses that would result from tax increases
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“Today’s report confirms that raising taxes on all taxpayers will result in fewer ‘help wanted’ signs hanging in the windows of businesses across the country," said House Ways and Means spokeswoman Michelle Dimarob.

She said “the House stands ready to work with the White House and Senate” to avoid all the tax rate increases and reform the tax code.

Republicans since the summer have pointed to an Ernst and Young report that estimated 700,000 jobs would be lost by allowing the tax rates on high-earners to rise.

The CBO report says that extending all the Bush-era rates and patching the Alternative Minimum Tax would help the economy expand by an additional 1.4 percent by the beginning of next year.

Doing that but allowing the top tax rates to rise would add only 1.3 percent to the GDP, an “effect nearly as large” as extending all the Bush cuts, CBO states.

Avoiding the spending cuts in the automatic sequestration would boost GDP by .75 percent, CBO said, while extending the expiring payroll tax cut and unemployment benefits would add another .75 percent.

Doing all of the above boosts GDP by 3 percentage points by the end of 2013.
CBO also provides job figures with each of these choices.

Avoiding the cliff altogether would add 3.4 million full-time-equivalent jobs, the report estimates.

Just extending the payroll tax and unemployment benefits — as some Democrats are advocating — would add 800,000 jobs.

Preventing the cliff would also expand the deficit. The report says it would add $503 billion to the deficit in 2013 and $682 billion in 2014.