CBO warns of US falling off 'fiscal cliff'

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WASHINGTON (AP) -- A new government study says that allowing Bush-era tax cuts to expire and a scheduled round of automatic spending cuts to take effect would probably throw the economy into a recession.

The Congressional Budget Office report says that the economy would shrink by 1.3 percent in the first half of next year if the government is allowed to fall off this so-called "fiscal cliff" on Jan. 1 -- and that the higher tax rates and more than $100 billion in automatic cuts to the Pentagon and domestic agencies are kept in place.

CBO's report says immediate tax increases and spending cuts would "represent an additional drag on the weak economic expansion."

CBO is the respected nonpartisan agency of Congress that produces economic analysis and estimates of the cost of legislation.