CBO Report: U.S. Economy Could Slide Into Recession

The Congressional Budget Office is warning the U.S. economy could fall back into a recession if Washington doesn't address the looming fiscal crisis. The Bush-era tax cuts are supposed to expire as is a temporary reduction in the payroll tax. Meanwhile, deep cuts in federal spending are supposed to take place if Congress and the White House can't agree on a debt-reduction plan.

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RENEE MONTAGNE, HOST:

NPR's business news starts with new warnings of recession.

The Congressional Budget Office says the U.S. economy could fall back into a recession if Washington doesn't address the looming fiscal crisis. The warning came in a report issued yesterday.

NPR's Jim Zarroli reports.

JIM ZARROLI, BYLINE: The CBO report says a number of things are scheduled to happen at the end of this year that will have a serious impact on the economy. The Bush-era tax cuts are supposed to expire, as is a temporary reduction in the payroll tax. Meanwhile, deep cuts in federal spending are supposed to take place automatically if Congress and the White House can't agree on a debt reduction plan.

The report says the cuts and tax increases will bring more money into the Treasury and lowered the federal budget deficit by as much as 4 percent. But it says higher taxes and less federal spending will also weaken the economy, lowering incomes and raising unemployment. In that case, the report says the U.S. economy could shrink by 1.3 percent during the first half of 2013, and then rebound slowly in the second half.

The report makes clear there are no easy solutions to the problem. It says extending the tax cuts and spending more would be better for the economy but would also increase the deficit over the long.

Jim Zarroli, NPR News.

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