Going Over the Fiscal Cliff Is Bad Policy—and Bad Politics Too
The country can't afford major fiscal reform right now
November 16, 2012
Even though the so-called "fiscal cliff" is really a fiscal slope, going over it could still produce significant harm to an already weak economy, and should be avoided.
Many Democrats think they can win the political game, by letting the Bush tax cuts expire this year, and then pressuring the Republicans to join them in voting early next year for the reinstatement of the Bush tax rates except for those brackets above $200,000 ($250,000 for joint filers).
But this may be bad politics, overestimating the willingness of the embittered and radicalized Republican right to compromise in order to avoid holding middle class tax cuts hostage to low tax rates on the rich.
And even if it is good politics, it is bad policy. While going off the cliff would not lead to immediate disaster, it would produce plenty of harmful effects—the abrupt end of the payroll tax cut for American wage earners, cuts in unemployment benefits, and budget uncertainty for private businesses and public agencies alike.
A "grand bargain" that attempts to combine major long-term tax reform with long-term entitlement reform is not necessary. What is needed instead is a "mini-deal" that defuses various ticking time bombs for the next few months. Only when job creation and growth are stronger should we take up major fiscal reforms. In this situation, kicking the can further down the road is the most responsible option.