Fiscal Cliff Would Only Dent The Deficit
Tuesday, November 13, 2012
Virtually everyone agrees that allowing the nation to fall off the fiscal cliff would be a bad thing.
Government programs would be cut, taxes would rise significantly on a majority of Americans, and according to the Congressional Budget Office the economy would fall back into recession.
But get this: Even if all of those things happen, there would still be a budget deficit.
When it comes to describing the fiscal cliff -- that combination of tax increases and spending cuts that would automatically begin in January unless Congress and the president step in -- federal budget guru Stan Collender turns to superlatives.
Expiration of tax cuts that were started under President George W. Bush "would clearly constitute one of the biggest tax increases ever imposed on taxpayers in American history," says Collender, who works at Qorvis Communications.
According to one analysis, ending the Bush-era tax cuts would cost the average household $3,500 a year.
And then there's the other side of the fiscal cliff, what's known as sequestration -- about $110 billion in automatic across-the-board spending cuts that would hit everything from schools to weapon systems every year for the next decade.
"That would be the single largest one-year reduction, nominal reduction, in the deficit in American history," says Collender.
This would take a significant bite out of what would be a $1 trillion deficit. Still, the government would spend more than it takes in.
The Congressional Budget Office projects a $641 billion budget deficit for the the fiscal year that started Oct. 1 -- and that's assuming the fiscal cliff actually happens and is in effect for three-fourths of the fiscal year.
"It's "a big, big, big, big, big number," says Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
But here's the thing -- you'd be hard pressed to find a politician or economist or even deficit hawk like MacGuineas who thinks letting the nation go over the fiscal cliff is a good idea.
"It's true that it's done in the absolute wrong way, but it's still not even big enough to start to tackle the fiscal problems that we have," says MacGuineas.
Now let's imagine Congress wants to extend the tax cuts: you can add nearly $250 billion to the deficit for this fiscal year. Do that for a decade and it will add more than $5 trillion in debt.
You might be thinking this could be solved by letting taxes go up on those making more than $250,000 per year.
Think again. That only shaves about 20 percent off the bill.
Avoid the painful cuts of the sequester -- you can add more than $1 trillion to the debt over the next 10 years.
And now you're talking about a big, big, big, big, big number.
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