As the debate over the so-called fiscal cliff and its potential effects continues in policy and political circles, it just may be the case that the U.S. economy will be set on a better path, says Brookings Institution senior fellow William Gale.
“Going over the cliff would give lawmakers both the opportunity to enact a budget deal because they would have more revenues and less spending already in the baseline and it gives them the incentive to enact a budget deal because they won’t like the structure of taxes and they won’t like the structure of spending,” says Gale.
And for good measure, tie in a temporary fiscal stimulus, he says. Enacting a payroll tax cut or government spending on infrastructure will have a stronger impact on the economy than the Bush tax cuts, Gale argues.
“What I would like to see us do is combine a temporary fiscal stimulus with the idea that we go over the fiscal cliff and let the Bush tax cuts expire,” he says.