Fiscal Cliff 2013: Pay Now or Pay Later

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For all the talk about how Congress needs to avoid the fiscal cliff, few have pointed out that the U.S. economy will suffer regardless.

The only question is the timing.

If Congress fails to act and America goes over the fiscal cliff on Jan. 1, 2013, the U.S. economy will, as many have noted, quickly slip into a recession.

But if Congress does somehow agree to avert all or most of the impact of the fiscal cliff, it simply postpones the pain for a few months or years.

And if Congress elects to postpone the fiscal cliff indefinitely, choosing to continue the federal government's massive deficit spending in perpetuity, the federal debt will weigh more and more heavily on U.S. economic growth as the years go on.

"That highlights lawmakers' dilemma," wrote The Wall Street Journal in a recent editorial. "Going off the cliff will produce great pain in 2013 but lead to a more stable fiscal situation a decade on. Averting it will forestall recession now but hamstring growth later."

How Fiscal Cliff 2013 Affects U.S. Economy

The fiscal cliff is political shorthand for the combination of spending cuts and tax increases scheduled to hit Jan. 1, 2013. It's the result of the expiration of the President Bush-era tax cuts combined with $1.2 trillion in automatic reductions in federal spending made last summer as part of the deal to raise the debt ceiling.

The consequences of going over the fiscal cliff or delaying it can be found in the latest report on the matter from the Congressional Budget Office (CBO), "Economic Effects of Policies Contributing to Fiscal Tightening in 2013."

And this latest report, which is different than the previous CBO projections, actually includes a clue as to how Congress could decide to deal with the fiscal cliff before the end of the year...

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