Future Growth Depends on Economic Agreement

Democrats and Republicans need to work together to resolve the fiscal cliff or the country will sink back into a recession, experts said Thursday morning. 

"We have to work really hard to try to resolve these issues. Our first order is to do no harm to a fragile economy," said Congressman Chris van Hollen, (D-Md.).

Edward Hill, senior vice president of government relations at Bank of America, said that he expects the economy to grow modestly in the first quarter of 2013 if the fiscal cliff is solved. If not, Hill said, he expects U.S. gross domestic product to shrink in the New Year. But he was optimistic an agreement would be made. 

"Investors in the United States are anticipating [politicians] kick the can down the road or a much smaller agreement," he said at the Washington Ideas Forum.

At the end of the year, a series of automatic spending cuts are set to kick in and tax cuts are scheduled to expire. If both occur, hundreds of billions of dollars would be removed from the U.S. economy, stifling growth. 

The fiscal cliff issue is occurring as a wider debate about federal spending and debt rages on. Democrats want to reduce the deficit by increasing tax cuts on the rich. Republicans insist that no such cuts are necessary, and that the deficit problem can be solved with government spending reform.

At first glance, it appears as if Democrats and Republicans are far apart on how to resolve these issues. But in the week since the election, leaders of both parties have signaled a willingness to work with the other to ensure economic growth continues.

Maya McGuiness, president of the Committee for a Responsible budget, said that she expects a short-term agreement that contains modest spending cuts.

"I think you can come up with the down payment version of the overall debt deal. They won't get the overall debt deal," she said. "Both sides can fight it out like we've been doing for years, or they can figure out what gets the other side to the table."

McGuiness added that tax reform was also needed to reduce national debt. Specifically, she said that Congress should reform the deduction system.

"Our tax code is Swiss cheese. We lose over a trillion dollars a year through these deductions," McGuiness said.

McGuiness also said that real debt reduction couldn't take place without raising taxes.  

"I think we have to raise taxes," she said. "This has become the huge dividing issue on this."