What’s Going On With The Fiscal Bump In The Road?

The Mother Jones article What’s Going on With the Fiscal Cliff? goes with the sub-head:

Why we’re not really going to fall off a cliff on January 1 and everything else you need to know about the upcoming budget talks.

That is why I think my headline is more appropriate.  Kevin Drum goes on to explain:

So when you add it all up, what’s the price tag for this stuff?

That’s where things get a little tricky. The whole fiscal-cliff metaphor is specifically designed to sound super scary, but it’s really kind of misleading. Here are two different ways of looking at it:

  • The fiscal-cliff way: On January 1, about $400 billion in tax increases and $200 billion in spending cuts will take effect. That’s $600 billion, or 4 percent of GDP, and that would be a huge drag on the economy.
  • The fiscal-staircase way: On January 1, total spending cuts and tax increases of about $1.6 billion will take effect. On January 2, another $1.6 billion. On January 3, another $1.6 billion. Etc.

You see? We’re not really going to fall off a cliff on January 1. The cumulative effect of all this stuff will be pretty small for the first few weeks. It’s only if it drags on forever that we really feel the hit.

The article goes into a lot more detail in a fairly humorous way.

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