CBO released its Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022 today that highlights what Manufacturers have been saying all year, letting the country go off of the “fiscal cliff” is not the way to address our nation’s fiscal problems. In fact, according to CBO, doing so, will very likely “lead to economic conditions in 2013 that will probably be considered a recession and the unemployment rate rising to about 9 percent in the second half of calendar year 2013.” This point underscores something that NAM’s President Jay Timmons has been saying for a while. The moniker “fiscal cliff” is wrong because going over a cliff assumes there is a bottom once you go over. In this scenario, it’s much worse – we don’t know where the bottom will be, when we will hit it, or even if there is a bottom..
The CBO’s update lays out the problem in stark terms and manufacturers hopes this gets policy makers moving. Allowing all of the changes pending in law – the expiration of the 2001 and 2003 tax relief, the first tranche of sequestration, the AMT patch lapsing, steep reductions in Medicare reimbursement rates – to go into effect will create a perfect storm for economic disruption beginning January 1, 2013. On the bright side, CBO estimates that if these changes don’t go into effect, “(t)he economy would be stronger in 2013: Real GDP would grow by 1.7 percent between the fourth quarter of 2012 and the fourth quarter of 2013, and the unemployment rate would be about 8 percent by the end of 2013.”
For those who continue to believe that allowing the “cliff” to hit would reduce the deficit and that alone is enough reason to stay on course – we point to CBO’s own data in rebuttal. CBO states that, “in the last few years of the 10-year projection period, continued growth in spending for retirement and health care programs will cause mandatory outlays to grow faster than the economy reaching 14.4 percent of GDP in 2022, compared with 13.2 percent in 2012.”
In fact, rather than a call to keep heading towards the abyss, CBO’s update should make clear to Congress that the time is now to veer from the calamitous course we are on and extend current tax policies for a year. This allows Congress the time to address comprehensive tax reform and a plan to address the real drivers of our nation’s deficit – entitlements.
Carolyn Lee is senior director of Tax Policy, National Association of Manufacturers.