Understanding the “Fiscal Cliff”

June 4, 2012 at 4:39 pm

We released a new analysis earlier today that sorts through some of the fears about what policymakers and pundits are calling the “fiscal cliff”:  the income and payroll tax cuts that will expire and the across-the-board spending cuts that will take effect — all around New Year’s Day.  Here’s the opening:

The sooner policymakers enact legislation to put the budget on a sustainable long-term path without threatening the vulnerable economic recovery, the better.  But, as they prepare for an almost certain post-election “lame duck” session of Congress, policymakers should not make budget decisions with long-term consequences based on an erroneous belief:  that the economy will immediately plunge into a recession early next year if the tax and spending changes required under current law actually take effect on January 2 because policymakers haven’t yet worked out a budget agreement.

Click here to read the full paper.

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More About Chad Stone

Chad Stone

Chad Stone is Chief Economist at the Center on Budget and Policy Priorities, where he specializes in the economic analysis of budget and policy issues. You can follow him on Twitter @ChadCBPP.

Full bio | Blog Archive | Research archive at CBPP.org

1 Comments Add Yours ↓

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  1. 1

    You wrote, “…putting in place a balanced package of spending and revenue measures that will stabilize deficits and debt (relative to the size of the economy) over the coming decade.”

    I urge you to visit the following sites so that you wil have a better appreciation of what actually happens in a fiat currency monetary system, where the sole issuer of the currency, the Federal government/Federal Reserve are not constrained by revenue to spend. In the real operation of our monetary policy the government neither has nor doesn’t have dollars and is not required to balance its budget and can pay it obligations in full at anytime without devaluing the currency.

    As for deficits, Accounting 101 informs that where there’s a deficit there’s a surplus, to the penny, and that surplus is in the non-government sector.

    http://pragcap.com/paul-krugman-sort-of-does-sectoral-balances

    Moreover, the government has options with respect to self imposed constraiints on fiscal and monetary policy, i.e., due to a law passed by Congress in 1996, the Executive Branch can use Proof Platinum Coin Seigniorage (PPCS) to fill the public purse to any desired amount, including an amount great enough to retire the full amount of the current debt subject to the limit and to remove the need for issuing further debt subject to the limit for the foreseeable future, except possibly for issuing very short-term debt which would be repaid immediately at the end of the short-term involved.



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