OK, for all of you not keeping score at home, here’s what happens at the stroke of midnight December 31 if Congress doesn’t act: Medicare reimbursements to doctors will be slashed, the beloved payroll tax cut will expire, extended unemployment benefits will be axed, millions more households will be subject to the dreaded Alternative Minimum Tax, and $100 billion worth of spending cuts to defense and domestic programs will go into effect. Oh, and everyone’s federal income taxes go up by a lot.
Economists say nearly $600 billion will be sucked out of the economy unless something is done. A growing number of people — let’s call them “cliff divers” — say “bring it on!”
With unemployment still hovering right around 8 percent, and economic growth anemic, this sounds kind of crazy. But then, so is a political culture that can’t seem to come to even the smallest agreement over how America should reduce its trillion-dollar deficit. The sensible way to handle things is to extend the tax cuts and keep government spending where it is while the economy is still weak, then work on a set of long-term changes that will bring the budget into balance: some tax hikes, some changes to entitlement programs, probably some defense cuts. But if our lawmakers are incapable of doing the sensible thing — and so far they have been — then a collective dive over the cliff may be the next best choice.
I know what you’re saying, but it won’t necessarily be a free fall. Lawmakers will have a little while before the tax hikes really begin to bite. Long enough, hopefully, to see the damage they’ve done, and come to their senses. If nothing else, it might allow Republican lawmakers who’ve signed the “no new tax” pledge to agree to new revenue without technically violating their pledge. After all, once all the tax cuts expire, a vote to restore some of them isn’t a tax bump; it’s a tax cut.
Granted this is no one’s idea of the best way to get budget reform. But if it’s the only way to get budget reform, we may need to all hold hands, and jump.