By Cliff Montgomery – Dec. 30th, 2012
The looming “fiscal cliff” being heatedly discussed by corporate news sources is a flat-out myth, declares a leading economic think tank.
The Center on Budget and Policy Priorities (CBPP) is one of the most respected think tanks in the D.C. area. Washington Post columnist Ezra Klein declared CBPP to be 2011’s “Think Tank of the Year,” and added that the Center is the “fastest, fairest, and smartest policy think tank in Washington.”
CBPP’s essential analysis? Though the fiscal changes scheduled to take effect January 2nd “will indeed start [America] down a slope that could ultimately lead to a recession in 2013,” the changes “will not produce an economic calamity…if the measures most damaging to the economy in the short term are in effect for only a few weeks or even a month or so while policymakers work toward an agreement.”
Below, the American Spark provides its readers with a number of quotes from CBPP’s analysis:
“The sooner policymakers enact legislation to put the budget on a sustainable long-term path without threatening the vulnerable economic recovery, the better. But, as they prepare for an almost certain post- election ‘lame duck’ session of Congress, policymakers should not make budget decisions with long-term consequences based on an erroneous belief: that the economy will immediately plunge into a recession early next year if the tax and spending changes required under current law actually take effect on January 2 because policymakers haven’t yet worked out a budget agreement.
“Understanding the relationship between changes to the budget and changes to the economy is critical for making sound decisions. Policymakers, media, and others widely refer to the tax and spending changes slated to take effect at the start of January as the ‘fiscal cliff.’ Those changes will not produce an economic calamity, however, if the measures most damaging to the economy in the short term are in effect for only a few weeks or even a month or so while policymakers work toward an agreement [Emphasis added].
“If current law initially takes effect — causing various income and payroll tax cuts to expire on January 1, emergency unemployment insurance (UI) to expire while joblessness remains very high, and across-the-board spending cuts to kick in on top of the discretionary cuts that the 2011 Budget Control Act caps mandate — the economy will indeed start down a slope that could ultimately lead to a recession in 2013. But that’s a far cry from the economy falling off a cliff and plunging immediately into recession.
“In fact, the slope would likely be relatively modest at first (and then much steeper if 2013 unfolds without a fiscal resolution).
“This means that if there is no agreement by January 1, policymakers will still have some (although limited) time to take steps to avoid the serious adverse economic consequences that the Congressional Budget Office (CBO) outlines in its recent analysis of what will happen if the expiring tax cuts and new spending cuts take effect on a permanent basis.
“That is, they will have some time to work out the needed compromises and craft a budget and economic package that can support the recovery over the next few years while putting in place a balanced package of spending and revenue measures that will stabilize deficits and debt (relative to the size of the economy) over the coming decade.”
