Clinton: US Already in a 'Recession,' Must Avoid Fiscal Cliff

By: Forrest Jones

The U.S. economy has slid back into a recession and Congress should extend all tax breaks due to expire at the end of the year to rekindle growth and avoid further contraction, former President Bill Clinton tells CNBC.

The Bush tax cuts and other tax holidays are due to expire at the end of this year, alongside extended unemployment benefits.

At the same time, automatic spending cuts are set to kick in. And that combination of expiring tax cuts and automatic spending cuts kicking in — widely known as a fiscal cliff — could siphon hundreds of billions of dollars out of the economy and exacerbate the present downturn.
"What I think we need to do is find some way to avoid the fiscal cliff, to avoid doing anything that would contract the economy now, and then deal with what's necessary in the long-term debt-reduction plans as soon as they can, which presumably would be after the election," Clinton tells CNBC.

Lawmakers need to compromise with President Barack Obama, and all sides need to agree to keep tax cuts and spending structures in play now and make sure growth returns -- and then tackle deficits.

"They will probably have to put everything off until early next year," Clinton says.

"That's probably the best thing to do right now. But the Republicans don't want to do that unless he agrees to extend the tax cuts permanently, including for upper income people, and I don't think the president should do that."

Turning to taxes, Clinton says top earners should pay more since current levels aren't that high, pointing out they just feel high because of the economic downturn.

Spending isn't that high either.

"They're still pretty low, the government spending levels. But I think they look high because there's a recession," Clinton says.

"So the taxes look lower than they really would be if we had two and half or 3 percent growth and spending is higher than it would be if we had two and a half or 3 percent growth, because there are so many people getting food stamps, so many people getting unemployment, so many people on Medicaid."

The nonpartisan Congressional Budget Office has the economy will officially fall into recession if the White House and Congress don't act now.

Specifically, the CBO warns that gross domestic product will contract 1.3 percent during the first six months of next year.

"Such a contraction in output in the first half of 2013 would probably be judged to be a recession," the CBO reports, according to the Associated Press.

The economy grew 1.9 percent in the first quarter of this year, down from an initial estimate of 2.2 percent.