The Congressional Budget Office — not prone to scaremongering — projects that the fiscal cliff would cause the economy to shrink by nearly 4 percent in the first quarter of 2013, enough to cause a double-dip recession. Why risk that?
4. Going over the fiscal cliff will make it easier to get a “grand bargain” on debt reduction.
Some political strategists argue that going over the cliff could turn up the pressure on deficit reduction and make it easier to reach a consensus. This logic goes: Once the tax cuts have expired, Congress can start from a different budget baseline, so that what would have been a tax increase on Dec. 31 will be a tax cut as of Jan. 1. I tried this logic on my 8-year-old son, who said: “Seriously, Mom? That is the dumbest thing I have heard,” reaffirming my sense that this kind of reasoning doesn’t carry water.
We are going to have to make some hard choices to fix not just the cliff but our broader budget problems. For Republicans, that means reforming the tax code in a way that would raise more revenue. And for Democrats, it means embracing structural entitlement reform, with strong protections for the most vulnerable. Waiting for a new baseline doesn’t make this easier, but it does put the country at tremendous risk.
And the idea that it would be easier to get a bipartisan compromise after going over the fiscal cliff completely misjudges how bad the blame game would be at that point. Politicians might think they would work it out quickly, but that’s a dangerous gamble.
5. Going over the fiscal cliff would be the worst possible outcome.
All the attention the fiscal cliff gets from lawmakers, businesses, experts and journalists can crowd out the key message. The looming cliff is an opportunity to make real progress on addressing the central, long-term fiscal challenge facing the United States: debt as a ballooning share of the economy.
There’s no doubt that going over the cliff would impose serious economic costs. But even worse would be blundering along on our current path without change. Our national debt threatens much larger economic consequences than those posed by the fiscal cliff. Down the road, rising debt could substantially hold back economic growth and send the country into a fiscal crisis that would be far worse than even a double-dip recession.
Among all the myths about the fiscal cliff, there is a certain truth. We will have to make changes to our fiscal course — either on our own terms or when the markets force us to. We should choose the first path.