“Fiscal cliff”: important policy questions, but no “crisis”

Take note of this headline in the NYT this morning: G.O.P. Yields on Fiscal Point, Clearing Way for More Talks.

But that’s the URL headline, not the one that readers will see on the website: “Day of Seesaw Talks Produces No Accord on Fiscal Crisis”

This is not a crisis.

The Bush era tax cuts for the vast majority of Americans will be extended or — more likely — made permanent. That might happen later today as public anger forces Republicans to rethink their pledges not to raise taxes on anyone, not even top earners. Or it might happen later this week or early next week, at which time any tax deal will be composed entirely of cuts — no one will have to vote to raise anyone’s taxes since the increased rates kick in automatically at midnight tonight. A vote tomorrow would only be tax cuts.

Of course, taxes are going up on the middle class anyway. There’s no serious talk of extending the payroll tax cut of the last couple of years, and Republicans have been pushing for a broader deal that reduces tax credits primarily used by middle class families and the working poor.

I should also note that Republican negotiators have at various points been pushing for indexing Social Security increases to chained CPI — a different way of measuring the Consumer Price Index (inflation) that would slightly reduce benefits for older Americans over the long term. There’s a real cost savings there, and the use of chained CPI was part of the big compromise package that Obama and Boehner were poised to agree on a couple of weeks ago. But it seems unlikely that the Republicans are still going to demand those long-term cuts to Social Security, especially with the likes of Marco Rubio vowing not to cut Social Security and blaming the President for the Republican proposal on chained CPI.

The mandated spending cuts that will go into effect tonight if there is no deal will take a big bite out of defense. Those cuts are broadly unpopular and will certainly be largely reversed in the next few days, even if no offsetting cuts can be agreed upon.

Sure, this is messy, but this is politics in a partisan age. And the worst case scenario — tax increases to levels of 2000 accompanied by some sharp spending cuts — will put us back on a much faster path to a balanced budget and a reduced federal debt. Going over the so-called “cliff” would hurt growth and likely put us back in recession, but it will also help clean up our long-term problems.

That’s hardly a “crisis”.

So enjoy the last day of 2012 and don’t make yourself crazy watching cable news.