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MSN
Money
Why
not jump off the fiscal cliff?
Washington
seems ill-prepared for serious budget work. The shock treatment of tax
hikes
and spending cuts just might spur responsible action.
We're
now just weeks away from the "fiscal
cliff" -- an austere package of tax hikes and spending cuts set to kick
in
Jan. 1, 2013, and worth $720 billion next year alone. Yet the politicos
in
Washington look miles away from even a short-term extension.
President
Barack Obama, charged up by his re-election,
opened negotiations by offering a deal (similar to his 2013 budget
proposal)
that also includes the elimination of congressional authority over the
debt
ceiling (which will be a big issue early next year). Republicans
shifted to a
more middle-of-the-road approach originally proposed by former Clinton
administration official Erskine Bowles, although he distanced himself
from the
GOP counteroffer this week. But Republicans still refuse to increase
statutory
tax rates, preferring instead to increase effective tax rates via
deduction
limits.
And
if there's no deal? Jumping off the cliff
would create a mild recession next year, according to the Congressional
Budget
Office, and push the unemployment rate back over 9%.
But
given the smallness of our politics, the
best option for the country might be to simply take the leap -- at
least
temporarily. Here's why.
What
the heck is the fiscal cliff?
Falling
off the cliff would mean a return to
Clinton-era income tax rates, higher investment taxes, deep cuts to the
defense
budget, the end of extended unemployment benefits and the end of the
payroll
tax reduction. It would also include other items, such as new taxes on
the
rich, related to Obamacare. (See "7 pieces of the fiscal cliff.")
In
a vacuum, this isn't exactly fiscal
Armageddon. And yes, it would help close the near-term deficit. But,
given our
current vulnerabilities, it would hurt economic growth and therefore
have less
of a positive impact on the deficit than many believe. This is the type
of short-term
austerity that Europe has been trying, and the results have been
dreadful.
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