There’s a lot of hypocrisy and loose talk out there about the “fiscal cliff.” The term is misleading because it suggests that “jumping off” is something that precisely no one would want to do. But the financial and economic realities are more nuanced, as Matt Yglesias explains:
…the fiscal cliff itself is a policy to produce a downward trend in the ratio of federal debt to GDP over the medium term. Indeed, the main reason to think avoiding the cliff might be a good idea is fear that debt reduction would harm the economy…
The cliff itself is really three separate things that are scheduled to occur roughly simultaneously. Part 1 is the expiration of the Bush tax cuts, which were originally scheduled to expire at the end of 2010 but were extended for two years during the last lame duck session. Part 2 is the expiration of the payroll tax cut that was enacted as part of the same deal. Part 3 is the implementation of spending cuts—half to defense, half to nondefense discretionary spending—that were agreed upon as a condition of raising the statutory debt ceiling. If Congress does nothing, these three factors will drive the budget deficit to less than 1 percent of GDP by 2018 and then stay below that level through 2022, at which point demographics and health care cost issues lead it to start rising again.
The benefits to the wealthy of avoiding the fiscal cliff are clear: the extension of some or all of the Bush tax cuts and the extension of the payroll tax cut. To be sure, these measures could also benefit the middle class, the working poor, small business owners and a whole range of other people, but it’s not as if avoiding the fiscal cliff will promote the shrinking of the debt-to-GDP ratio over the medium term, as the signatories of the letter claim. It might be good growth policy to avoid some or all of the fiscal cliff and it might help put more people back to work next year, but if your sole concern is shrinking the deficit over the next decade then you ought to be pumped about jumping off the cliff.
Mack Lannahan 