Today’s scare stories are all about the new CBO report warning of severe consequences if Congress fails to act before the end of the year, which would send the federal government over the “fiscal cliff” and send unemployment soaring. Republicans are jumping on the CBO report to blame Barack Obama and the Democrats for risking a new recession.
So it’s time for a reminder on just what the “fiscal cliff” is, and how we got here.
We’re talking mainly about two things: tax increases which will go into effect if the Bush-era tax rates that were extended in 2010 expire, and spending cuts generated by the Budget Control Act that ended the debt limit showdown last year. So who is responsible for the current threat?
On the spending-cut side, it’s easy: the Republicans are fully and completely responsible. They not only voted to create the sequester; they wanted even larger cuts than the sequester is set to trigger. When they pushed for them last year, Democrats objected, and the result was an impasse that landed us where we are now. If large cuts would damage the economy — and that’s what the current fuss is about — then it follows that the Republican preference for even deeper cuts threatened to cause more and earlier damage.
Note that the president and some Dems in Congress were for some cuts, but generally wanted any austerity delayed until the economy had recovered, while the Republican position has been that austerity was good for the economy. The particular composition of cuts in the planned sequester were not what Republicans wanted, but the problem here is the size of the cuts, not their composition.
The tax side is more complicated, and has more to do with a real disagreement between the parties and their inability (so far) to resolve it. Both parties want to extend most of the Bush-era rates; Republicans want to extend all of them, while Democrats want to increase rates for high-income filers. Unlike with the cuts, neither party wants all the rates to expire. The danger is that they’ll fail to compromise, which will result in a large tax increase that neither side wants. It’s simply too early to blame either side for failing to compromise. What we do know, however, is that last time they reached this point in 2010 it was the Democrats who caved completely to the GOP, which got its way.
In reality, it seems highly unlikely that disaster lurks in any of this, especially on the tax side. Even if the tax increase or the sequester cuts go into effect at the end of the year, Congress can reverse it whenever it wants. The CBO scare story isn’t the immediate effects of a December stalemate; it’s the effect of a stalemate that lasts throughout 2013. That seems unlikely.
Regardless, if there’s one quick takeaway from this, it’s the amazing spectacle of Republicans suddenly deciding to blame Obama for the potential consequences of austerity.