As we watch Europe fall off a cliff, let’s not forget that we ourselves will take a plunge on January 1 unless Congress pulls us back.
The CBO has gamed out three scenarios. If the Bush tax cuts expire and the automatic cuts in domestic and defense spending take effect, GDP will fall 1.3% between the fourth quarter of 2012 and the second quarter of 2013. So we’re talking another recession.
If the Bush tax cuts are extended, the payroll tax cut expires, and the automatic spending cuts don’t happen, GDP will grow by 1.7% in the same time frame. No new recession, but not great growth either.
If we keep on the same path, with all tax cuts extended (Bush and payroll) and no automatic spending cuts, GDP will grow by 5.3%.
I’m with Option 3. Let’s get some solid growth, and then we can deal with the deficits and national debt.