Printed on: December 27, 2012

Experts: Short fall over 'cliff' survivable


WASHINGTON (AP) -- The economic threat that's kept many Americans on edge for months is nearing reality -- unless the White House and Republicans cut a budget deal by New Year's Day.

Huge tax increases. Deep cuts in domestic and defense programs. The likelihood of sinking stock prices, reduced consumer spending and corporate layoffs. The risk of a recession within months.

Still, the start of 2013 may turn out to be far less bleak than feared. For one thing, the two sides may strike a short-term agreement before New Year's that postpones spending cuts until spring. President Barack Obama and members of Congress return to Washington today.

Even if New Year's passed with no deal, businesses and consumers would not likely panic as long as some agreement seemed imminent. The $671 billion in tax increases and spending cuts could be retroactively repealed.

And the impact of the tax increases would be felt only gradually. Most people would receive slightly less money in each paycheck.

"The simple conclusion that going off the cliff necessarily means a recession next year is wrong," said Lewis Alexander, an economist at Nomura Securities. "It will ultimately depend on how long the policies are in place."

It's always possible that negotiations between the president and Republican congressional leaders will collapse in acrimony.

Without any agreement at all for months, the fiscal cliff would cause the U.S. economy to shrink 0.5 percent in the first half of 2013 and fall into recession, the Congressional Budget Office estimates.

But most economists expect a deal, if not by New Year's then soon after. Businesses and consumers will likely remain calm as long as negotiators seem to be moving toward an agreement.