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Obama talks 'fiscal cliff.' Why the urgency to reach deal sooner, not later?

Speed is of the essence in dealing with the fiscal cliff, some economists warn. Delaying until late this year – or worse, 2013 – would mean a bigger hit to the US economy, and even a recession.

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"At one extreme, if the whole cliff is resolved before year-end and the [spending] cuts are modest, the economy survives largely unscathed," growing at a 2.5 percent pace in the first half of 2013, Mr. Harris and his team write. "At the other extreme, going over the Cliff for two months ... results in a mild recession," even if a medium-size effort to reduce the cliff is enacted retroactively.

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Taking no action at all would be even worse, many economists say. The Congressional Budget Office has estimated that unemployment would jump to 9.1 percent next year in that case.

The coming changes to fiscal policy can affect the economy in a few important ways.

First, even before the cliff arrives there's an uncertainty factor that can delay things like business hiring, investment, and even consumer spending. So far, it appears that a potential end of Bush-era tax rates has not caused consumers to adjust their behavior much. But that could change if going "over the cliff" starts to appear likely. Businesses may have already started adjusting their behavior, wary of a slowdown in the economy in the new year.

Second, to the degree that tax hikes and federal spending cuts do occur, that has direct impact on behavior. US households will have less spending power, and reductions in federal outlays for things like defense and transportation will also mean sizable job losses.

Both Democrats and Republicans say it's important not to let the economy slide back into recession, but both sides also feel pressure to put federal budgets on a more sustainable path for the long term. Otherwise, the national debt could grow to a scale that damages the economy.

And both sides are pushing to have any deal done their way: Republicans guarding against tax hikes and Democrats calling for more tax revenue from the top 2 percent of taxpayers.

In that environment, uncertainty abounds about the shape of a deal – and the timing of a deal. In an interview published Friday by USAToday, House Speaker John Boehner (R) said Congress should put in place a deal to delay much of the cliff, by extending tax cuts for another year. He argued that it should be the newly elected Congress next year, not the lame-duck session that occurs during the next few weeks, that should decide such important tax and spending matters for the long term. 

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