Don’t Fall for the “Fiscal Cliff” Rhetoric
The hype around the economy in general has been intense for the past couple years, but recent warnings by Congressional Budget Office about an impending “fiscal cliff” have been misinterpreted and thus fueled a sense of economic panic.
Under the current law, the Bush tax cuts, recent payroll tax cut, and emergency unemployment benefits will expire at the end of this year. Simultaneously, automatic and significant spending cuts from the Budget Control Act will go into effect on January 1. The fear is that this combination and tax increases and spending cuts will immediately push the U.S. economy back into a recession, negating any progress over the last few years. Lawmakers are using these fears to justify making bad policy decisions, such as extending the Bush tax cuts for the wealthy.
But don’t let the “fiscal cliff” hype fool you.
First, the term “fiscal cliff” itself paints a false picture, evoking visions of the U.S. economy plunging back into recession as soon as the ball drops on New Year’s Eve. That will not happen. This so-called “cliff” is actually more of a “fiscal slope,” as described by the There is no doubt that simply letting everything expire will have a negative effect on economic growth. If nothing is done in the first quarter of 2013, the risk of recession is very real. But no one expects Congress to sit idly by and do nothing. The likelihood of all the Bush tax cuts permanently expiring is almost nil. Barring some unforeseen event, Congress will extend some or all of the Bush tax cuts in the lame duck session or in early January, as both parties agree that some of the tax cuts should be extended. Similarly, most analysts expect Congress to take action on the sequester cuts, as many in both parties don’t want to see them take effect either. Already, Senate Finance Committee Chairman Max Baucus is working on tax reform proposal to be voted on after the election.
Knowing this, we can help our policymakers and representatives make informed and conscious decisions. Ideally, policymakers will come to an economically or ethically safe decision before the deadline. What we cannot do is let lawmakers use unsubstantiated scare tactics justify making bad policy, which would do far more damage to the economy in the long run. In other words, we can”t sacrifice long-term stability for short-term theatrics. When you hear this fiscal cliff rhetoric being used, speak up and use the truth to set things straight.