Fitch says that uncertainty over federal tax and spending policies related to the so-called fiscal cliff “weighs on the near-term economic outlook” and raises the prospect of another recession.
A massive budget showdown could begin after the elections in November and stretch well into next year, despite the threat of the fiscal cliff – $500 billion in impending tax increases and spending cuts.
Fitch also says the burden of government debt on the economy will continue to rise and could hurt growth if an agreement isn’t reached on the deficit.
A fiscal and political crisis in the nearly-broke northeastern Pennsylvania city of Scranton deepened Tuesday as public employee unions sought to have the mayor held in contempt of court after he defied a judge and slashed workers’ pay to minimum wage.
Unions representing firefighters, police and public-works employees also filed a pair of federal lawsuits against Mayor Chris Doherty and the city that alleged violations of labor law and due-process rights.
Doherty last week ignored a court order and cut the pay of about 400 city workers to the federal minimum wage of $7.25 per hour. The Democratic mayor said it was all the cash-strapped city of more than 76,000 could afford, promising to restore full pay once finances are stabilized.
“It’s incredible,” the unions’ attorney, Thomas Jennings, said Tuesday. “I’ve never had a public official just say, `I’m not going to obey a court order. I’m not even going to try. He can’t tell me what to do.'”