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US extension of payroll tax cut & unemployment benefits risk new recession

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US extension of payroll tax cut & unemployment benefits risk new recession

The Congressional Budget Office (CBO) in its report on the economic forecast has said that the US would see growth drop by 2.9% in the first half of next year, with unemployment rate stuck at above 8%.

Fiscal tightening, including changes to tax and spending policies would cause the US to tip back into recession in 2013.

The main reason for the gloomier forecast was due to an extension of a payroll tax cut and federal unemployment benefits.

In February of this year, the US congress voted in favor of extending a payroll tax cut until the end of 2012 that would save middle-class Americans some USD 1,000 a year.

The CBO warned that the US must avert “fiscal cliff” that would otherwise take the US back to recession in 2013.

US fiscal cliff

  • Expiring tax-rate reductions and tax credits originally enacted in 2001, 2003 or 2009
  • Sharp cuts in Medicare payments to doctors
  • Automatic, across-the-board cuts to discretionary and mandatory federal spending included in the 2011 Budget Control Act
  • Expiring emergency unemployment benefits and a 2% payroll tax cut for Social Security


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