Automatic federal tax increases and spending cuts due to take effect this year are likely to push the economy into a recession in 2013, according to an analysis released this week by the Congressional Budget Office. The contraction would be accompanied by a dramatic fall in the federal budget deficit.
“Policymakers face difficult trade-offs in deciding how quickly to implement policies to reduce budget deficits. On the one hand, cutting spending or increasing taxes slowly would lead to a greater accumulation of government debt; on the other hand, immediate spending cuts or tax increases would represent an added drag on the weak economic expansion,” explains the budget office.