If nothing changes, and the fiscal cliff set to take effect on Jan. 1 is not averted, the United States will actually become more like its peers in Europe.
In response to pressure from bond purchasers seeking higher and higher yields, as well as institutions like the European Union and the IMF who wanted to avoid future bailouts, most Western European countries tightened their budgets in 2009 and 2010, and continue to do so today. The United States has stood basically alone among major developed democracies in not pursuing fiscal austerity measures like tax increases and spending cuts.
The United States, by contrast, expanded its deficit by letting tax revenue fall, cutting it further in the stimulus and through the payroll tax cut, and expanding spending through the stimulus and other measures. But that all changes if the Bush tax cuts, the payroll tax cut, the stimulus tax cuts, and unemployment insurance expansion expire at the start of next year, and the automatic budget cuts in the debt ceiling deal take effect. That would trigger a contraction worth 3.2 percent of GDP.
That's much more than every country other than Greece and Portugal has pursued since the crisis (data and sources here):
And in countries where contractions actually were huge, the economic effects were devastating. Unemployment in Greece stands at 25.4 percent, about where the United States peaked during the Great Decession. Spanish unemployment reached 25 percent last month, even with a much milder contraction than in Greece.
Arguably, those states needed to contract. Spanish bond yields have been near the 7 percent danger zone for a while now, while Greek yields almost reached 40 percent in March, and remain around 20 percent. In the United States, by contrast, the yield on 10-year bonds is -0.85 percent. Bond traders are not only demanding a high price for continued deficit-spending. They're literally paying us to keep deficit spending.
So letting next year's policies take effect would be disastrous for the economy in service of lowering the deficit, when there's no reason to be lowering the deficit in the short to medium-term, and plenty of reasons to keep it high (not least that it's cheaper to deficit-spend than to pay for things out of tax revenue). If nothing changes, we're set to replicate all the costs of European austerity, and none of the meager benefits.