"Fiscal cliff" could knock 6.5% off America's Q1 and Q2 annualised growth

"Taxmaggedon" would hit in January

The American Congressional Budget Office (the inspiration for our own Office of Budget Responsibility) has released a report warning that the impact of the upcoming "fiscal cliff" would be to wipe 4 per cent from GDP growth for 2013.

The fiscal cliff – a phrase coined by federal reserve chairman Ben Bernanke – is the result of a series of several major budget provisions all expiring at once, at the same time as some of the automatic cuts negotiated as part of the debt ceiling crisis last summer come into effect, and several tax cuts time out. More broadly, though, it is the result of America's frankly broken political system.

In March, Congress failed to pass two potential measures which would have ended the crisis:

The first, a bipartisan bill which has the most chance of passing in the Democrat-controlled Senate, was defeated 382-38; the second, the White House's preferred option, was unanimously rejected 414 to 0.

If something is not passed by the time the various provisions expire, on 31 December, then the CBO estimates that:

Those policies will reduce the federal budget deficit by $607 billion, or 4.0 percent of gross domestic product (GDP), between fiscal years 2012 and 2013. The resulting weakening of the economy will lower taxable incomes and raise unemployment, generating a reduction in tax revenues and an increase in spending on such items as unemployment insurance. With that economic feedback incorporated, the deficit will drop by $560 billion between fiscal years 2012 and 2013, CBO projects.

If all the fiscal blows are deflected, the economy should grow by 5.3 per cent (annualised) in the first half of next year. If they aren't, it will instead contract by 1.3 per cent.

The coming showdown has been compared by many to the debt ceiling crisis, when Congress hit deadlock last summer over a budgetary provision which would have caused America to default on its debt, but in many ways, it is more dangerous still. The debt ceiling itself will reenter the political battleground in spring of 2013, and the Republican leader John Boehner is signalling that he will play hardball over the issue. Then there's the fact that the deal will be happening shortly after the presidential election so there is no incentive for dealmaking to start until November; both parties' incentives will differ greatly depending on who will be inheriting the mess.

Related, Joe Weisenthal suggests the most apocalyptic scenario possible:

It's very easy to imagine Romney winning the popular vote and Barack Obama winning the electoral college. In fact, the electoral college map is VERY favorable to Obama. This scenario is definitely possible and it would be the fiscal cliff Black Swan.

If you thought Congressional Republicans were going to be intransigent on the debt ceiling, multiply that by 10x. Any goodwill would be dead as the Republicans would feel a mandate based on the desires of the majority of the people, and Obama would be weak.

It would be NUTS!

Republican Speaker John Boehner. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Jeremy Corbyn challenged by Labour MPs to sack Ken Livingstone from defence review

Former mayor of London criticised at PLP meeting over comments on 7 July bombings. 

After Jeremy Corbyn's decision to give Labour MPs a free vote over air strikes in Syria, tonight's Parliamentary Labour Party (PLP) meeting was less fractious than it could have been. But one grandee was still moved to declare that the "ferocity" of the attacks on the leader made it the most "uplifting" he had attended.

Margaret Beckett, the former foreign secretary, told the meeting: "We cannot unite the party if the leader's office is determined to divide us." Several MPs said afterwards that many of those who shared Corbyn's opposition to air strikes believed he had mishandled the process by appealing to MPs over the heads of the shadow cabinet and then to members. David Winnick declared that those who favoured military action faced a "shakedown" and deselection by Momentum activists. "It is completely unacceptable. They are a party within a party," he said of the Corbyn-aligned group. The "huge applause" for Hilary Benn, who favours intervention, far outweighed that for the leader, I'm told. 

There was also loud agreement when Jack Dromey condemned Ken Livingstone for blaming Tony Blair's invasion of Iraq for the 7 July 2005 bombings. Along with Angela Smith MP, Dromey demanded that Livingstone be sacked as the co-chair of Labour's defence review. Significantly, Benn said aftewards that he agreed with every word Dromey had said. Corbyn's office has previously said that it is up to the NEC, not the leader, whether the former London mayor holds the position. In reference to 7 July, an aide repeated Corbyn's statement that he preferred to "remember the brilliant words Ken used after 7/7". 

As on previous occasions, MPs complained that the leader failed to answer the questions that were put to him. A shadow minister told me that he "dodged" one on whether he believed the UK should end air strikes against Isis in Iraq. In reference to Syria, a Corbyn aide said afterwards that "There was significant support for the leader. There was a wide debate, with people speaking on both sides of the arguments." After David Cameron's decision to call a vote on air strikes for Wednesday, leaving only a day for debate, the number of Labour MPs backing intervention is likely to fall. One shadow minister told me that as few as 40-50 may back the government, though most expect the total to be closer to the original figure of 99. 

At the end of another remarkable day in Labour's history, a Corbyn aide concluded: "It was always going to be a bumpy ride when you have a leader who was elected by a large number outside parliament but whose support in the PLP is quite limited. There are a small number who find it hard to come to terms with that result."

George Eaton is political editor of the New Statesman.