Fiscal Cliff’s ‘Stark’ Impact: 4% GDP

Fiscal Cliff

Fiscal Cliff

The budgetary cocktail of tax and spending cuts looming at year’s end, the so-called “fiscal cliff,” could have a serious impact on the economy “unless lawmakers reach a compromise to extend some or all of the temporary tax cuts and postpone mandatory spending cuts.”

So writes Joseph Brusuelas, a Bloomberg economist who reports a potential “hit” to the economy of 4 percent in Gross Domestic Product.

“The economic impact of permitting the combined tax and spending measures to expire is stark,” he writes in a special Bloomberg Economic Brief. “The result will be higher unemployment, falling taxable income and a mild recession in early 2013.”

The gross budgetary impact of inaction is about $607 billion, he reports. After lower spending on debt is taken into account, the net impact is roughly $560 billion.

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