Congress is unlikely to reach a deal before the end of the year that would derail the coming "taxmaggedon," when several pivotal tax cuts expire, former White House budget director Peter Orszag said.
The former head of President Barack Obama's Office of Management and Budget — and current vice chairman of global banking for Citigroup — contradicted consensus belief that Washington will be able to avoid what Federal Reserve Chairman Ben Bernanke has called the “fiscal cliff.”
Instead, he said an agreement is unlikely between now and the presidential election, nor will a deal get done during the lame duck congressional session following. Any deal likely won't come until 2013, Orszag said.
Fears are that the expiration of former President George W. Bush's tax cuts, a payroll tax holiday, and extended unemployment benefits, as well as mandated tax increases and spending cuts, will strangle the U.S. economic recovery.
"Under pretty much any scenario the probability of a deal being done during the lame-duck is pretty low, much lower than people think," Orszag said during an interview on CNBC's “Squawk Box.” "If (Republican Mitt) Romney wins, the House in particular will logically say, 'Let's wait until President Romney is in office and we'll clean things up after the fact.'
"If President Obama is re-elected, there may be an attempt to get a framework agreement done during the lame duck, but I don't see how that — it may happen, but it's going to be more challenging than people think."
In all, the coming storm is expected to siphon $500 billion out of the economy, or nearly 4 percent of gross domestic product . At a time when the economy is growing at just over 2 percent, the inability to stave off "taxmaggedon" could send the economy into recession.
Orszag also was critical of both sides in the debate over how to reduce the $1.2 trillion U.S. budget deficit and pare the nearly $16 trillion in national debt. He said there should be a combination of stimulus and austerity.
"A pox on both your houses, because we should be doing a lot more of both," he said. "The whole flaw in the debate here is folks going for immediate austerity. That's a mistake. You want delayed austerity coupled with up-front stimulus."
As events unfold, Orszag said he is counseling clients to get acclimated to a slow-moving environment, where the U.S. economy grows at just a 2 percent to 2.5 percent rate for the next year or two.