Between a Mountain of Debt and a Fiscal Cliff: Finding a Smart Path Forward

March 29, 2012 |

At the end of 2012 and the beginning of 2013, many major fiscal events are set to occur all at once. They include the expiration of the 2001/03/10 tax cuts, the winding down of certain jobs provisions, the activation of the $1.2 trillion across-the-board “sequester,” an immediate and steep reduction in Medicare physician payments, the end of current AMT patches, and the need to once again raise the country’s debt ceiling. At the end of 2012, we face what Federal Reserve Chairman Ben Bernanke calls a “fiscal cliff.” Taken together, these policies would reduce ten-year deficits by over $6.8 trillion relative to realistic current policy projections – enough to put the debt on a sharp downward path but in an extremely disruptive and unwise manner. Gradually phasing in well thought-out entitlement and tax reforms would be far preferable to large, blunt, and abrupt savings upfront. Policies set to take effect at the end of the year could seriously harm the short term economy without making the changes necessary to address the drivers of our debt or strengthen the economy over the long-term.

 

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