Fiscal cliff forecast: Bad now, worse later

Budget analysts warn all options will be painful

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CBO also said that extending tax cuts for the wealthy has a lower economic impact than more government spending or extending tax cuts only for others.

The report gave the GOP some ammunition as well. It said future deficits will be driven chiefly by the growth of spending in entitlements such as Social Security, Medicare and Medicaid. The Republican presidential ticket talked about reforming those programs on the campaign trail, but Democrats have been reluctant to trim back those programs and ran a series of ads attacking Republicans over that.

Sen. Charles E. Schumer, New York Democrat, told reporters Thursday morning that “entitlements are on the table,” but said that meant trying to find a way to offer the same services at cheaper rates rather than cutting the benefits available.

“I don’t believe you have to change the basic structure of Medicare, Medicaid,” he said.

Even those who insist the government can stand to cut $100 billion immediately said they don’t support the automatic “sequesters” on Jan. 2. Sen. Tom Coburn, Oklahoma Republican, said rather than across-the-board cuts split between defense and domestic programs, Congress should come up with a package of specific cuts that eliminate wasteful or duplicative programs.

“It’s not all that hard,” he said. “The problem is that nobody wants to do the hard work and then defend politically what they’ve done.”

Despite the dire warning, the CBO reports may do little to bridge ideological differences. However, lawmakers said it should be a prod to some action.

“The consequences of inaction will deliver a dramatic, short-term blow to the economy,” said Sen. Max Baucus, chairman of the Senate Finance Committee, who asked the CBO do the reports.

All sides say they want to extend the tax cuts for 98 percent of taxpayers, but Republicans want them extended for the wealthiest 2 percent as well, arguing that those taxpayers are the small businesses and investors who spur the rest of the economy.

They want to keep the Bush-era tax cuts in place, and they also oppose ending deductions and loopholes unless that money is then pumped back into the tax code to lower rates.

The GOP says that would make the economy more efficient, which means businesses would make more money and pay more taxes on that added revenue. However, it’s unlikely that the CBO would be able to score that revenue in its budget projections.

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