Budget and Economic Outlook (August)
This report on the “fiscal cliff” (the January tax hikes and spending cuts) states that going over it will create a recession, but that a recovery will follow that has a better long-term debt outlook. Not going over the cliff will create better short-term economic numbers as the price of a debt explosion later. The assumption, which is how CBO always operates, is that the conditions do not change over the prediction times. That is, the “fiscal cliff” laws remain stable for years, or their alteration does.
Economic Effects of Policies Contributing to Fiscal Tightening in 2013 (November 8).
The latter provides more details on the effects of specific policies. It also assumes “climbing down” the fiscal cliff instead of falling over it. That is, the current tax hikes and spending cuts are postponed–the can is kicked yet again–for two more years.
Read the reports (this all assumes the predictions are accurate, but that’s another issue). This is not going to be easy. Whether the CBO is right or not, anything that actually saves our ass is going to gore the ox of a lot of voters. Remember the economic downturn when Reagan wrung stagflation out of the system. If the recovery hadn’t been well under way by the end of his first term…ouch.
It’s possible only a Democrat like Obama could pull this off now, since the media will defend him to their last breath. A 2013 corrective downturn under Romney? They’d flay him alive.
Recession recoveries:
Note the 1980 and 1981 “Vs.” Nice and sharp. That’s what saved Reagan’s ass. He wrung out the economy early in his first term and it won him a second term.
How sharp would the “V” be for the fiscal cliff? But Obama doesn’t have to worry about re-election. He’s nicely placed for this.
The key is not just new taxes. It’s less spending. The “fiscal cliff” has huge spending cuts. The only spending liberals don’t like is military, and Obama has big plans for huge new government “investments.” Would he be able to give that up?
Interesting times.
Sidebar:
Note from the November report that Obama’s current signature move, “tax hikes on the rich,” is lost in the noise. If you go into the actual report and look at the table of numbers:
Extend Most Expiring Tax Provisions and Index the AMT for Inflation:
deficit increase, $330 billion in 2013, $420 billion in 2014.
Extend Most Expiring Tax Provisions—Except for the Lower Tax Rates on Income Above Certain Thresholds—
and Index the AMT for Inflation:
deficit increase: $288 billion in 2013, $382 billion in 2014.
Amount of deficit increase due to preserving the current tax rates on the rich: $42 billion in 2013, $38 billion in 2014.
Don’t spend it all in one place.