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The Fiscal Cliff Does not Hit in January

12/24/2012 04:20:00 PM
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Watching the news cover the "fiscal cliff" debate in Washington, I often feel the urge to remind everyone that on January 1st...nothing happens. As Bill McBride said, the TV stations playing the timers counting down to when we supposedly go over the cliff are just embarrassing themselves. Some commentators have taken to calling it a "fiscal slope," but I think the point they are trying to get at is that there actually is no deadline in January at which all these spending cuts and tax hikes happen. The tax hikes don't really affect anyone until April 15 of 2014 when they settle their tax bills, and even that is not a binding deadline since congress can always send out rebate checks and retroactively lower taxes. The spending cuts are not things that have to go into effect immediately either. And there really is no way to make a deal before January 1st, especially given that few republicans will give an inch of ground on taxes.

Thus, Senator John Barrasso caught my eye today when the news quoted him saying
"I believe the president is eager to go over the cliff for political purposes. I think he sees a political victory at the bottom of the cliff: He gets all this additional tax revenue for new programs, he gets to cut the military, which Democrats have been calling for for years, and he gets to blame Republicans for it."
This is some combination of a terrible misrepresentation of the issues, and a terrible cheap shot at the president. It is a cheap shot for a couple reasons. First, because we will only technically be going over the fiscal cliff, and I'm sure he knows this--we will be reaching an agreement in January, before any of the austerity measures actually come into effect. Second, it is a cheap shot because it plays on the popular misconception that the fiscal cliff is about bigger deficits--that tax revenue will be going to pay down the deficit, not finance new spending. The spending that Obama has proposed--mostly an extension of unemployment benefits for another year, is just a continuation of current policy. But there is a third reason why the statement is a terribly low blow for the senator: the military cuts were the Republican's choice. Does he not remember the debt ceiling debate last year when the Republicans chose to include the automatic cuts to military spending as an "automatic trigger" to try to force a deficit reduction deal? Obama never proposed those military cuts, never supported them, and still does not want them.

By contrast, the bottom of the fiscal cliff is a political victory for the republicans. Even if a deal is made after then, they get to claim they didn't raise taxes, get to claim they cut spending and reduced the deficit, and, as Barrasso demonstrates, get to blame all the bad stuff on Obama. That's not to say that the democrats don't benefit from letting the New Year's day "deadline" lapse as well, as it lets them cut a deal with republicans who need to save face.