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The so-called fiscal cliff isn’t really a cliff at all

Steve Benen, among others, ARGUES that “fiscal cliff” is the wrong metaphor for the fiscal challenge currently facing the federal government:

It’s true that federal policymakers are facing a daunting task. At the end of next month, automatic spending cuts are due to kick in, just as all Bush-era tax cuts and President Obama’s payroll tax cuts, are set to expire. The Congressional Budget Office has said the combination of events may push the economy into a recession, unless a compromise solution is reached.

The situation is commonly characterized as the “fiscal cliff.” There is, however, a problem with the metaphor: it’s misleading and more than a little absurd.

(Snip)

Matt Yglesias made a similar point last week: “A salient fact about non-metaphorical cliffs is that falling over them is generally irreversible. If the cliff is high enough that falling off of it would kill you, then if you fall off you’re going to die and that’s the end of it. The ‘fiscal cliff’ by contrast isn’t like that at all.”

There’d be a little short-term pain, but President Obama would unveil a new policy early in the new year, which would push taxes lower on the middle class. So long as congressional Republicans are willing to act, much of the problem would be resolved quickly. (We’re talking about days and weeks, not months.)

(Snip)

I’ve heard pundits arguing lately, “We need a deficit-reduction plan to avoid the fiscal cliff,” but that doesn’t really make sense. Going over the so-called “cliff” would mean automatic deficit reduction. The point of the bipartisan talks, then, is to find an alternative solution to the same challenge. Policymakers are effectively looking to replace an unpopular austerity plan with a more palatable one.

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16 Comments

  1. http://en.wikipedia.org/wiki/United_States_fiscal_cliff

    As far as deficits go, we would probably be better off if Congress did nothing, and let the CBO baseline measures kick in. Then at least we will be at a deficit of 1.2% of GDP by 2021 instead of 8.5% if we keep the status quo.

    Of course, 1.2% of GDP in 2021 will probably be around $400B, or roughly the annual deficits under the Bush administration. In other words, the options we have are, “sucks” and “really sucks.”

    So Benen is wrong (as usual). It is a fiscal cliff no matter how you look at it.

    Both sides know what needs to be done. There needs to be an increase in revenues and a decrease in spending. Democrats need to realize that we need to go back to historical norms of spending levels of around 18% of GDP. Doing so will have to require cuts in entitlement programs, especially Medicare and Medicaid. Republicans need to realize that tax increases, especially on the rich, are an unfortunate necessity.

  2. Luke Fredrickson

    Obama’s leverage will go way up once the tax cuts expire. Then he can pass a “supplemental” to keep the DOD funded (fat chance the GOP votes that down in wartime) and put forth his own reform package.

    Now he has put the GOP on the spot: oppose middle-class tax cuts? oppose Medicare reform? oppose deficit reduction? oppose increased revenue? strangle the economy with inaction?

    Make the GOP filibuster these mainstream reforms. It will be clear as day they are holding the nation hostage, right after a clear electoral victory for Obama:

    “Nice little recovery you’ve got there…it’d be a shame if something happens to it.”

  3. Luke Fredrickson

    If I were Obama, I would offer targeted tax relief for the wealthy too, but only if they could prove they significantly contributed to American job creation. In other words, is your fortune in a US bank? Rmoney would not qualify.

    And end the tax credit for moving companies offshore. Clinton was wrong on that score.

  4. “If I were Obama, I would offer targeted tax relief for the wealthy too, but only if they could prove they significantly contributed to American job creation. In other words, is your fortune in a US bank? Rmoney would not qualify.”

    Nice for the class warfare meme.

    Sucks for actual deficit reduction.

  5. “significantly contributed to American job creation?” What’s that supposed to mean? So if Goldman Sachs opens up 2 new financial analyst positions at 100K/year for some new college kids, they don’t get tax relief that would enable them to create a few more positions? Instead you would only reward employers that created 200 part time minimum wage positions?

    Luke has pointed out what is exactly ideologically wrong with the backwards thinking liberals in this country.

  6. THIS is an outstanding editorial.

    http://online.wsj.com/article/SB10001424127887323894704578113033115035920.html?mod=WSJ_Opinion_LEADTop

    President Obama can now proudly claim the four largest deficits in modern history. As a share of GDP, the deficit fell to 7% last year, which was still above any single year of the Reagan Presidency, or any other year since Truman worked in the Oval Office.

    revenue kept climbing, up 6.4% for the year overall, and at $2.45 trillion it is now close to the historic high it reached in fiscal 2007 before the recession hit. Mr. Obama won’t want you to know this, but this revenue increase is occurring under the Bush tax rates that he so desperately wants to raise in the name of getting what he says is merely “a little more in taxes.” Individual income tax payments are now up $233 billion over the last two years, or 26%.

    This healthy revenue increase comes despite measly economic growth of between 1% and 2%. Imagine the gusher of revenue the feds could get if government got out of the way and let the economy grow faster.

    Now let’s look at outlays, which declined a bit in 2012. That small miracle was achieved thanks to a 4% fall in defense spending, a 24% fall in jobless benefits, and an 8.9% decline in Medicaid spending.

    Note, however, that federal spending remains at a new plateau of about $3.54 trillion, or some $800 billion more than the last pre-recession year of 2007. One way to think about this is that most of the $830 billion stimulus of 2009 has now become part of the federal budget baseline. The “emergency” spending of the stimulus has now become permanent, as we predicted it would.

    (snip)

    The reality is that the fastest way to raise revenue is with faster economic growth. To the extent that raising tax rates will reduce the rate of growth, it will slow the flow of tax revenue and increase the deficit.

    Even if Mr. Obama were to bludgeon Republicans into giving him all of the tax-rate increases he wants, the Joint Tax Committee estimates this would yield only $82 billion a year in extra revenue. But if growth is slower as a result of the higher tax rates, then the revenue will be lower too. So after Mr. Obama has humiliated House Republicans and punished the affluent for the sheer joy of it, he would still have a deficit of $1 trillion.

    Most of our readers know all this, but we thought you’d like some new evidence to rebut the kids who voted for your taxes to go up when they return from college for Thanksgiving. Maybe they’ll figure it out when they have a job, if they can find one.

  7. Brian Opsahl

    A simple anology if i was to buy a new car and then hand you the bill…then start complaining that you didn’t pay off that car fast enough…..Bush bought the new car and handed the bill to Mr Obama ….2 wars, free drugs all on the peoples credit card….now im going to complain because you’re NOT paying my bill fast enough….oh the Hypocracy

  8. Brian Opsahl

    I wonder what the interest is on the 5.6 trillion Bush handed to Mr Obama is….?

  9. Luke Fredrickson

    Nef, I explained what I meant by contributing to American job creation – keep your money in a US bank where they can lend it to support businesses. And we’er talking about individual income tax, not corporations like Goldman.

    doc, this last election was all about class warfare. And one class lost. Americans chose a leader who was explicit about taxing the wealthy at a rate that was considered fair by Ronald Reagan.

    Your class warfare meme = squirrel

  10. No it’s not Luke.

    Read the editorial.

    The entire point is that Obama sold the voters on the idea that if we just raised taxes on millionaires and billionaires (except in Obamaworld if you make 200,000 a year then you are actually a millionaire, congratulations) then the deficit problems will melt away.

    Except they won’t. Not even close. You cannot avoid simple math facts anymore.

    Now of course the voters did re-elect him, so we will all get what they asked for.

    I actually think that the Republicans that control the house should take an entirely different approach. They should have Mr. Obama submit his exact plans and approve them lock,stock and 2 smoking barrels.

    In as little as 2 years and certainly 4 years the impact will be obvious to the American people and there will be nobody else for the Democrats to blame. Bush will be a distant memory, the rich will have been soaked and I will bet, nothing will have been improved.

    In addition, the ACA will be in full effect and people can decide how much they love or hate it.

  11. Luke Fredrickson

    “The entire point is that Obama sold the voters on the idea that if we just raised taxes on millionaires and billionaires (except in Obamaworld if you make 200,000 a year then you are actually a millionaire, congratulations) then the deficit problems will melt away.”

    NOT TRUE doc. He said they should pay their fair share, and that they currently do not. The voters agreed. Murdoch’s editorialists can lie about it all they want.

    Obama also said there is no evidence that tax breaks for the richest help the economy, and McConnell’s own non-partisan study confirms it.

    Job creator meme = squirrel.

    http://www.nytimes.com/2012/11/02/business/questions-raised-on-withdrawal-of-congressional-research-services-report-on-tax-rates.html

  12. doc: You just make up this crap as you go along, don’t you?

    Obama never implied “that if we just raised taxes on millionaires and billionaires…then the deficit problems will melt away.” And the Wall Street Journal editorial never said he did.

    The president has suggested combining spending cuts with a small tax hike on those making more than $250,000. But, of course, you have to misrepresent what he said because…well, because you’re a right-winger with dreams of the plutocratic life dancing in your classist little head.

    As Daffy Duck used to say, “It is to laugh.”

  13. Brian Opsahl

    Wheres your Facts Doc: cause ive never heard him say what your claiming, ever !!
    Turn down the nitris doc

  14. So Pat, you agree with the editorial from the WSJ then?

  15. Where’s the lie in that video, doc?

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