Fiscal Shock: America's Economic Crisis

The U.S. economy is bracing to take an immediate $500 billion hit on January 1, 2013. The “double whammy” of across-the-board cuts in spending and federal tax increases will be large and sudden.

Fiscal Shock: America’s Economic Crisis reveals the devastating economic consequences of not addressing the fiscal cliff before it happens. The NAM’s report concludes the following:

• Absent legislative action, large spending cuts and large tax increases will hit the economy at the same time, causing a total fiscal contraction of $500 billion, or about 3.2 percent of GDP.

• Washington’s failure to address the pending fiscal cliff is already having an impact, cutting 0.6 percentage points from GDP growth for 2012.

• The worst could be ahead. If the fiscal contraction happens, the economy will almost certainly experience a recession in 2013 and significantly slower growth through 2014.

• From 2012 to 2015, the economy will lose 12.8 percent of the average annual real GDP it could have attained with moderate growth, sapping critical resources from all economic sectors.

• Job losses will be dramatic. By 2014, the fiscal contraction will result in almost 6 million jobs lost, and the unemployment rate could reach more than 11 percent.

• Households will take a big hit. Real personal disposable income will drop almost 10 percent by 2015.

• Manufacturers of consumer goods and defense contractors likely will see large and durable contractions in their industries.

• It will take most of the decade for economic activity and employment levels to recover from the fiscal shock. Another recession could deal a substantial blow to long-term economic potential, permanently reducing living standards in the United States.