Policy Makers in Race to Prevent Fiscal Shock
Commentary by Joseph Brusuelas, Bloomberg Economist
With the U.S. House of Representatives scheduled to adjourn until next year on Dec. 14, policy makers are now on a strict deadline to act in time to prevent a fiscal shock that may push a fragile economy into recession in the first quarter.
The combination of spending cuts and tax increases scheduled to take place at the outset of 2013 stands to hinder economic growth due to substantial income effects and liquidity constraints. The results may be worsened by distribution concerns. The end of the Bush-era tax cuts and Obama tax holiday (the temporary 2 percent payroll tax cut) may burden lower income groups even as the jobless rate remains high and overall consumption remains sluggish.
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