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.