“According to CBO’s projections, if all of that fiscal tightening occurs, real (inflation-adjusted) gross domestic product (GDP) will drop by 0.5 percent in 2013 (as measured by the change from the fourth quarter of 2012 to the fourth quarter of 2013)—reflecting a decline in the first half of the year and renewed growth at a modest pace later in the year,” CBO said in the November 8 report.
“That contraction of the economy will cause employment to decline and the unemployment rate to rise to 9.1 percent in the fourth quarter of 2013.”
In its report, CBO made clear that the biggest impact would come from the tax increases. The agency estimated that if Congress preserves all of the current tax rates, GDP would be 1.5 percent higher than it would be if Congress allowed taxes to go up.
Conversely, preventing the spending cuts from taking effect would only boost GDP by an estimated 0.75 percent – underscoring that the planned tax increases would have double the economic impact of the planned spending cuts.