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Former Reagan economic advisor Art Laffer on the consequences of the potential fiscal cliff for the U.S. economy.
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Are able to Congressional Budget Office warning today that a recession is likely in 2013.
If congress doesn't take action over the fiscal cliff.
Tickle us into the dire projections from CBO director -- -- and -- -- I think what we see coming for next year under current law.
-- is some very large.
-- -- fiscal tightening -- larger reduction and deficit relative to GDP.
And we've seen any year since 1969.
And that is -- sufficiently large shock negative shock to.
Demand for goods and services next to -- to push the economy.
Into a significant recession.
So how realistic is this CBOs out like here with -- now to break down the CBO report.
After -- -- her former economic advisor to President Reagan thank you so much for joining us.
They Cassandra it's -- pleasure be with -- so.
Do you agree with this this isn't pretty dire forecast from this -- -- -- how -- this fresh fiscal cliff warning do you agree.
-- yeah I think he's right I -- I don't think it's a fiscal cliff I really think it's -- tax cliff.
You have a huge tax increases coming on January 1 2013.
Is Glenn Hubbard just said and you know I've never heard of Sandra never -- my economy being taxed in the prosperity.
If you tax people who work and you give that money to people who don't work you're gonna get a lot of people not working.
And that date of January 13 January 1 2013.
Is dead on I don't know how they can stop people from trying to adjust.
Their income into and out of 2013.
To really make a big difference in the.
Forecasts so what does the future look like -- -- -- that tax hikes to going to affect in this spending cuts I'd do we enter recession.
Well I think the spending cuts are good.
I don't think the spending cuts will hurt the economy frankly I think it'll help but I think the tax increases are the real killers and I think if they go through we will be in a recession.
But if we don't act fairly soon -- will also be -- one I mean if you know they're gonna raise tax rates on January 1 2013.
What do you do today.
I mean you accelerate all the income you can possibly do in a 2012.
To avoid these tax increases people are already doing that -- so.
Even if you wait until let's say December 22.
And then extend the tax cuts a lot of people will -- have done their planning.
So you'll still see a big drop off in 2013.
-- because of the shift the fact.
And it's really serious it's it's much bigger than most people think it's it's 50% bigger than Reagan's tax cuts were in 1981.
It's a much bigger than the 2010.
The last minute agreement to get the tax -- so.
You know you've got a real big fiscal cliff or tax -- here in 2013 Paul I have quite concerned but that's -- this could be felt could be the last forecast that we get from the CBO.
IA and what does this mean for each of the presidential candidates right now.
Well I hope we mean the last forecast this year I'm just teasing this year right -- thing if and yes what it means is that there's a really bad outlook there I mean that the outlook for by the CBO and they're pretty good group of people and they're pretty solid.
I mean this is a terrible piece of news for Obama if -- -- imagined anything like this three years ago I don't even think he would have sought reelection.
You know this is a terrible set of circumstances and -- know unfortunately I think it works to Romney's advantage.
But it's terrible the economy has to go through this type of travails.
Just to be able to change presidents but it.
I guess that's what's necessary.
Let's talk numbers here and into in the CBO forecast today -- they said that the economy where it would contract by half a percent.
By the end of 2013 for the year for the whole year for the year that's right up.
So what my question is who did damage are we actually looking after the United States economy if that occurs.
What you think you could sit -- and talk about GDP be in the range of fifteen trillion dollars you're talking half a percent on that which is what 750 billion.
At -- below 75 billion I guess that's -- it's a huge number.
And if you look at the first half of the year -- where they talk about the decline being almost 3%.
I mean that's a huge sharp downturn for the first half of the year and then a little -- that it it would small optics you'll get huge increases the unemployment rate.
More participation rate declines in -- to be bad for the poor the minorities the disenfranchised.
It's bad for every -- there's just no need for this to happen.
And obviously unemployment is key here because it seems it's the double edged sword.
If these tax increases in spending cuts are inverted unemployment would go up to nine point 1% they say but if -- avoided altogether unemployment -- -- to eat.
Percent which is still historically very hot -- so it seems to be a losing battle for the -- unemployment number.
-- yet it's.
And it's very -- to fix -- Sandra.
I mean if you look at it all you need to do is have low rate flat tax spending restraint sound money free trade a minimal regulation.
Pretty much all of the things that Romney and Ryan have proposed is exactly what we need to get a good quick jump in this economy just like we had under Reagan.
You know when those tax cuts took effect on January 1 1983.
We had growth rate from the seven -- eight and a half percent ranges.
On quarterly basis that they're nothing in -- they don't even have enough employment growth to offset population growth.
It it's it's really very frightening.
That the united -- should be under these types of circumstances.
React to leave it there doctor Laffer we have a few seconds Annie Annie and get any good news anything positive that you can leave us went.
Ali I think -- -- to win the election I think all of these forecasts that we're talking about a going to be different.
And I think he and Ryan are gonna put in great set of policies led by Glenn Hubbard the previous -- end up you'll get a lot of prosperity like we've never seen before.
I am very optimistic about the US over the next four years right after our outset and that spectacular I wanted to leave -- with a smile thank -- -- thank.
