Will Fiscal Cliff Drama Have a Hollywood Ending?
The dreaded “fiscal cliff,” as the measures are referred to, has taken on fable-like proportions. Exaggerated fears depict an apocalyptic day, assuming that the fiscal cliff will cause government spending to come to a shuddering halt and personal income to plunge. But as Derek Thompson wrote in the Atlantic last week, this is just not the case; a cliff is not the appropriate topographical metaphor to use. His preference is for the term “fiscal slope” because the impending higher tax rates will diminish income over the course of the year and spending cuts will force the federal government to cut programs and layoff employees gradually.
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However, this is not to say that the fiscal cliff won’t prompt a crisis if a governmental compromise cannot be reached. As former secretary of the Treasury Lawrence H. Summers told Al Hunt, the executive editor of Bloomberg News, there is an overwhelming likelihood of recession, if no agreement is reached. The nonpartisan Congressional Budget Office made the same projection, but noted that the austerity program would reduce the deficit by $700 billion by the end of next year.