Don’t even think about it! Falling off the fiscal cliff would be an economic disaster for the United States. The fall would add over $300 billion in taxes in this fiscal year, along with another $200+ billion in spending cuts and other changes, or a net change in the deficit of over half a trillion dollars in the current fiscal year (9 months of it are left).
The Congressional Budget Office says that our GDP would be reduced by 3.4 percent in fiscal year 2013, and 4.5 percent in calendar year 2013. We are suffering now with a “slow” recovery of 2 percent growth or slightly less, with unemployment still about 7.9 percent. The cliff recession would wreck our economy and make our current national pain seem pleasant.
Worse, the suffering would not gain us much. Taxes would rise on all Americans, including those least able to pay, but little would have been done to reduce the entitlements which are the long-term drivers of our deficits and debt.
According to Secretary of Defense Leon Panetta, our national security would also be imperiled. As would healthcare: Doctors’ reimbursements would be cut 27 percent, and many would no longer accept Medicare and Medicaid patients. Nearly 30 million more middle class Americans would be subject to the Alternate Minimum Tax, a form of torture now reserved for more affluent taxpayers.
Also included in the fall would be a failure to extend the debt ceiling. The country would default on its debt and not be able to borrow. Hollywood might be able to dream up a more horrible “nightmare” scenario, but jumping off the cliff will be worse than most normal people can imagine.
There are some members of Congress who have expressed support for the “let ‘er rip” concept: That is, forget the negotiations and just jump of the cliff. They see it as a good way to bring more tax revenue, and expect good policy to arise from the ashes of the fall.
Falling—or jumping—off the cliff is good policy, but only if you like recessions, enjoy unemployment, and don’t mind living in the ashes. The economists who tell us the fall means a recession are not fooling. The cliff is real, and the fall will be painful. Responsible politicians will avoid it at all costs.