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Understanding the "Fiscal Cliff"

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.