WASHINGTON — The economy will probably tip into recession next year if lawmakers can’t break an impasse over the federal budget, according to a report.
The nonpartisan Congressional Budget Office said Wednesday that scheduled tax increases and spending cuts in 2013 would reverse the modest economic recovery. Economic output would shrink next year by 0.5 percent, joblessness would climb to about 9 percent with “economic conditions in 2013 that will probably be considered a recession,” the agency said in a biannual report on the budget and economic outlook.
“Whether lawmakers allow scheduled policy changes to take effect to alter them will play a crucial role in determining the path of the federal budget over the next decade and the outlook for the economy,” according to the report.
Congressional leaders have said they probably won’t consider until after the election the Bush-era tax cuts set to expire Dec. 31 or $1 trillion in automatic spending cuts that would begin taking effect in January. There is no sign of an agreement to avoid a so-called fiscal cliff, and the CBO report prompted partisan finger-pointing.
The deficit will reach $1.1 trillion this year, about $100 billion less than CBO had projected in March, according to the report. That would be down from last year’s $1.3 trillion, in part because tax revenue has risen by almost 6 percent and spending is down by about 1 percent this year.
It would be the fourth consecutive year the United States would run a trillion-dollar budget deficit. The budget office forecasts U.S. debt will total 73 percent of the nation’s gross domestic product this year. That would be the highest level since 1950 and about twice as large as five years ago, before the most recent recession, CBO said.
The report, coming less than three months before the Nov. 6 election, may influence debate between Republicans and Democrats over fiscal policy. The two parties have offered different plans for taxing and spending, with Republicans calling for spending cuts and no tax increases, and President Barack Obama proposing higher taxes for top earners.
The report shows the need for lawmakers to give middle class families “confidence that they won’t see their taxes go up at the beginning of next year,” said White House spokesman Jay Carney in a statement.
Congressional Republicans said Wednesday’s report emphasizes the need to avert the so-called fiscal cliff.
“Instead of threatening to drive us off the fiscal cliff and tank our economy in their quest for higher taxes, I would urge President Obama and congressional Democrats to work with us,” House Speaker John Boehner, an Ohio Republican said in a statement.
Rep. Chris Van Hollen of Maryland, the top Democrat on the House budget committee, said: “Republicans in Congress refuse to enact the president’s plan, choosing instead to protect special interests and tax breaks for the wealthiest.”
The economic recovery will continue at “modest” pace, the budget office said, with real GDP growth growing at an annual rate of 2.25 percent in the second half of this year. The jobless rate will continue to exceed 8 percent while inflation will remain low, the report said.