If you’ve been longing for a simple but thorough explanation of the fiscal-you-know-what, Kevin Drum obliged today, complete with EZ charts on CBO estimates of the impact of various current-policy items on economic growth assuming they stay in place for a significant period of time. Here is Kevin’s conclusion on what is likely to happen:
1. January 1 is not a drop dead date. Nothing much will happen unless all the spending cuts and tax increases drag on for weeks or months.
2. If no deal is made, economic growth will slow down a lot and unemployment will increase a lot.
3. Therefore, a deal will probably be made. On taxes, everyone wants to extend the Bush tax cuts for the middle class, and the only question is how long Republicans will refuse to extend them unless the Bush tax cuts for the rich are also extended. Probably not too long. Likewise, no one is really all that excited about the spending cuts either, so probably some kludge will be worked out that either eliminates or postpones most of them.
4. It’s possible that the whole thing will be solved with a grand bargain, which would produce trillions of dollars of deficit reduction via spending cuts and tax increases in the future. However, this will only happen if House Republicans are willing to accept tax increases. Right now, that doesn’t seem likely.
Earlier Kevin notes that a deal might be reached that enables Republicans to keep their “no tax rate increase” pledge with some sort of “loophole closing” measure (though King Norquist has always made it clear “base-broadening” was only acceptable if the proceeds were used to lower rates); that’s the option John Boehner has been hinting at, and also what the president has conspicuously declined to rule out. At this point, such talk is about as concrete as Mitt Romney’s tax plan was during the campaign.
My favorite part of Kevin’s article is the name he supplies to the multiple events in question: “the fiscal staircase,” which is much catchier than the “fiscal landscape-shift” I tossed out the other day. I’ll use it henceforth until such time as someone comes up with a better and more accurate substitute for “cliff.” Let’s save “cliff” for Wile E. Coyote and the divers of Acapulco.