It’s widely considered that the so-called “fiscal cliff” could dramatically slow the already-weak American economy. The Bush tax cuts expire at year’s end, as do the temporary payroll tax cuts that the Obama administration pushed.

And there are mandated cuts in government spending, primarily to defense. Congress and the White House agreed to that primarily as a way to force a broader budget deal.

There seems little doubt that the economy will take a blow if all this happens (see this post), but something really good would happen too: the deficit would immediately start declining.

Going over the fiscal cliff would cut the deficit by $720 billion in the first year.

And that’s one reason that some think we should simply do nothing. But some are arguing for the fiscal cliff because we would reset the budget debate. With so many members of Congress taking a hard line on tax increases, there’s little way to increase revenues — and without more revenue there’s little chance of ever balancing the federal budget.

From The Washington Post

That’s the gist of the WashPo Wonkblog piece by Suzy Khimm today: Meet the fiscal cliff-divers, who think jumping off could be our best bet.

From that post:

The very notion of a “fiscal cliff” suggests that the country is approaching a calamitous drop-off at the end of the year — and it would be tantamount to suicide to jump off.

Colombian cliff diver Orlando Duque launches off a 78-foot rock peninsula in La Rochelle, France. (Dean Treml/AFP-Getty Images)

But a contingent of policy wonks and Democrats insist that letting the Dec. 31 deadline come and go — thus triggering automatic tax increases and spending cuts — could produce the best outcome for the country. Once the tax hikes have kicked in, the reasoning goes, Republicans would be hard-pressed to roll them all back and would have to accept a deal on taming the deficit that contains more new tax revenue than GOP lawmakers want.

You can read about the study in the WSJ and Washington Post, but I’m just citing data straight from the TPC study.

The charts below are broken into quintiles — five cross sections that each represent about 20% of the total population.

In 2012 dollars, those quintiles are:
0 – 20%: up to $20,113
20% – 40%: $20,114 to $39,790
40% – 60%: $39,791 to $64,484
60% – 80%: $64,485 to $108,266
80% – 100%: $108,267+

Because of extreme variability in the top quintile, it’s worth noting further breakdowns used occasionally in the study: 90% $143,373; 95% $204,296; 99% $506,210; 99.9% $2,655,675.

The fiscal cliff involves a variety of expiring Bush-era and Obama-era tax cuts, including increases in income tax rates, in the Alternative Minimum Tax (AMT), estate taxes, payroll taxes, and others.

Here’s a great chart showing the percentage change in overall federal taxes for average members of each quintile:

And here’s the same data in a chart:

So the nation’s top earners would see a slightly higher percentage hit than the other 80% of Americans, but half of that difference is due to the greater impact on the top 1%.

The percentage differentials among the four lower quintiles are very similar.

Of course, the lower the quintile, the more likely that the income is being spent on housing, transportation, food, and basic needs.

If taxes rose that much on middle- and low-income Americans in one fell swoop, the economic consequences could be devastating.