Sunday, August 26, 2012

Federal Budget: CBO's 'Fiscal Cliff'

Derek Thompson: CBO suggests Congress must act now

CBO projects that the so-called "fiscal cliff" -- a double-whammy of tax hikes and spending cuts -- in early 2013 will produce a short and sharp recession followed by rising unemployment throughout the entire year. 

Nobody should want the economy to crater again. Republicans and Democrats agree that 98% of taxpayers should benefit from the same low rates they have today. The GOP is as nervous about swift cuts to defense as Democrats are nervous about swift cuts to non-defense discretionary programs.
And so, we'll almost certainly get a deal. This is sure to make the staunchest deficit hawks furious.
[bold is mine]

Nobody wishes the economy to crater again.  But I would be furious with such a deal.  I'd like to see two of the three things happen which the CBO so fears: 
  • immediate across-the-board tax hikes (which effectively repeal the Bush tax cuts)
  • deep defense spending cuts
I would delay cuts to discretionary programs until recovery.  

Obama may finally play brinkmanship with the GOP; he's in a great position to get his lower 98% Bush tax cut extension without having to compromise with the GOP on the top 2% cuts.  He may yet blunder if he refuses to put defense cuts on the table to balance out discretionary cuts.  Unless he does, its possible the GOP may hold hostage non-defense discretionary cuts for a deal that would extend the top 2% Bush rates.  

2013 will be a poor year, anyway.  

A little more pain now; less lingering pain down the road.    

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