What Matters Most In the Fiscal Cliff Situation?

This entry is part 4 of 9 in the series The Fiscal Cliff Explained

Part 4 – What Matters Most in the Fiscal Cliff Situation?

It’s important to recognize that the austerity crisis is a collision between deficit reduction and stimulus. The good news is that if you look at the various components of the fiscal cliff separately, you’ll see that the parts that do the most for deficit reduction do the least for the recovery, and vice versa. This suggests the possibility of “a la carte” approach to the fiscal cliff, in which we extend the most stimulative policies and wave goodbye to the most costly policies. And if you’re looking to go a la carte then here, via the Economic Policy Institute, is the menu.

EPI fiscal cliff menu

The most stimulative policies are, predictably enough, the policies that were intended to be stimulus. Among the least stimulative policies are the Bush tax cuts. The spending sequester is also a really nasty hit to the economy.

That menu, if anything, understates the cost of policies like the Bush tax cuts. Those numbers are only for 2013. The Bush tax cuts, if they’re extended, are likely to be extended at least for the next decade, which means their cost will be 10 times higher than what’s on the menu (actually, it’ll be even more than that because of inflation and economic growth, but let’s not get too complicated here).

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