'Fiscal Cliff': Macroeconomic Consequences of Tax Increases and Spending Cuts [January 9, 2013] [open pdf - 366KB]
"A major policy concern for Congress has been when and whether to address the 'fiscal cliff,' a set of tax increases and spending cuts that would have substantially reduced the deficit in 2013. In projections made in March 2012 by the Congressional Budget Office (CBO), this fiscal restraint, constituting 5.1% of output in 2013, would have reduced growth to 0.5% from 4.4%. Unemployment would increase by 2 million. In August, updated estimates projected growth at a 'negative' 0.5%. The American Taxpayer Relief Act (H.R. 8) eliminated part of the fiscal cliff. Policy choices with respect to the fiscal cliff are difficult because of the conflict between short-run and long-run economic and budgetary objectives. In the short run, the reduction in demand from the reduced budget deficits could damage an already fragile recovery. In the longer run, however, deficit reduction is needed to address a projected unsustainable debt level."
CRS Report for Congress, R42700