Jon Cohn has a characteristically smart rundown of the policy and political implications of the New Year’s deadline:
Is January 1 truly the make-or-break date that so many politicians and pundits seem to think? That’s a lot less clear.
The administration has already instructed federal agencies to keep spending money as if the old, 2012 authorizations were still in effect. (For this reason, the Huffington Post’s Ryan Grim has likened the fiscal cliff to the Y2K scare.) The Internal Revenue Service, for its part, has not yet issued instructions on how to change withholding calculations for personal income taxes. The IRS has said it’d offer guidance by year’s end, which presumably means Monday. But even if the IRS produces new withholding guidelines, employers and payroll companies would need time to adjust their systems—in many cases it would take a payroll cycle or two, maybe even more. The Labor Department could pay those extended unemployment benefits retroactively, as it has done in the past.
That’s not to say January 1 is meaningless. While getting jobless benefits retroactively is better than not getting them at all, it’s not much help if your rent is due at the beginning of the month. Even temporary reductions in Medicare pay could convince doctors to see fewer patients, making it harder for seniors to get medical attention, at least for some period of time. The spectacle of congressional action could also scare consumers, investors, and employers—weakening a recovery that isn’t all that strong in the first place. That’s obviously not an outcome anybody wants.
But, if you’re a Democrat, holding out past January 1 has its upsides. Once the Bush tax cuts come off the books, the baseline for budget calculations changes: Bills preserving Bush-era rates on lower and middle-incomes, while restoring Clinton-era rates on upper incomes, would become tax cuts rather than tax increases. It’s a purely semantic distinction, for sure, but it could win over reluctant Republicans.
That last part really is key. In the minds of people who claimed to be radically opposed to any sort of tax hike, it’s hard to imagine the baseline not mattering. It may define common sense given all the vitriol spewed at Obama over his plans to “radically redistribute” wealth and so forth, but the fact of the matter is that in 2013 Republicans can vote for Obama’s preferred tax structure (or something like it) and have it be a “cut.” At the moment, that’s not the case, so a few days could potentially make a world of difference.