Yes, Sequestration Is Still The Law For 2013. Gulp.

Andrew Sullivan —  Aug 23 2012 @ 3:01pm


The CBO updated its fiscal outlook yesterday. I have to say that the fact that keeping all the current support for the economy in place only leads to a paltry 1.7 percent growth next year helps explain more deeply the depth of the crisis we are still in – globally as well as nationally. Drum, who provides the modified CBO graphic above, weighs in:

If we extend everything, CBO figures economic growth will clock in at about 1.7% next year — not great, but not catastrophic either. But if everything expires, the country will fall back into recession, with the economy shrinking by 0.5%. It's vanishingly unlikely that Congress will even attempt to address this before the election. That means we're due for yet another exciting lame duck session in December.

Greg Ip warns that a series of smaller fiscal drags also threaten the recovery:

Here's the real threat. Even if the Bush tax cuts are extended and the sequester delayed, a huge amount of fiscal drag remains in place. They include the expiration of the payroll tax cut, the expiration of extended unemployment insurance benefits, imposition of a new 3.8% Medicare investment tax on the wealthy, and the bite to discretionary spending embedded in the Budget Control Act and prior continuing resolutions. ISI Group projects $220 billion of fiscal tightening in 2013, or 1.4% of GDP. JPMorgan, noting that many Recovery Act programmes are rolling off at the same time, puts the hit at a slightly higher $266 billion, or 1.7% of GDP. The IMF reckons fiscal policy will tighten more in America next year than in Spain, Italy or Portugal. Though smaller than the full fiscal cliff, the fiscal clifflet still poses a significant headwind to the economy. If enough other bad stuff is going on, it could push the economy back into recession.