This December 2010 Congressional Research Service graph shows graphically what would happen if the Bush tax cuts expired: deficits would drop below 3% of GDP, the lowest rate in the past three decades except for the Clinton years. And this January 2012 CBO report re-affirms that judgement: “Over the next few years, projected deficits in CBO’s baseline decline markedly, dropping to under $200 billion and averaging 1.5 percent of GDP over the 2013–2022 period.”
The problem, of course, is that then there would then be no excuse for lame-duck legislation to make old ladies eat cat food. Even Barack Obama’s pathetically inept negotiating skills would no longer provide a plausible excuse.
But what about the debt limit? Once it is reached, the Republicans would surely insist on some restoration of the Bush tax cuts and on compensating cuts to entitlement benefits. To that, the clear answer is to stop covering deficits, however small, with borrowed money. The Treasury has the legal authorization to mint coins of arbitrarily large value and to deposit them into its account at the Fed, from which the government’s bills are paid. That way, Barack Obama no longer needs to negotiate and plead with the GOP not to default on government debts.
The point is that whenever you hear Democrats talking about a “grand bargain” or a “balanced approach,” it is because they, like the GOP, sincerely want little old ladies to eat cat food.
UPDATE: A friend just now asked me: “What about the ‘fiscal cliff’?” The Wikipedia provides the following overview of the so-called “fiscal cliff”:
The Congressional Budget Office (CBO) has estimated that letting current laws take effect would significantly reduce future budget deficits. For example, the Bush tax cuts of 2001 and 2003 (extended by President Obama in 2010) are scheduled to expire at the end of 2012. Other deficit reducers per CBO include allowing other tax cuts enacted in 2009 and 2010 by President Obama to expire in 2012, allowing the alternative minimum tax (AMT) to affect more taxpayers, and reducing Medicare reimbursements to doctors. These and other current laws, if allowed to take effect, reduce the deficit from an estimated 4.7% GDP in 2021 to 1.2% GDP. Total deficit reduction could be as high as $7.1 trillion over a decade if current law is enforced and not overridden.
The CBO estimated in May 2012 that allowing current law to take effect would reduce the deficit by a net $560 billion in 2013, roughly half the $1.2 trillion 2011 deficit. Real GDP growth in 2013 would be reduced to 0.5% versus 1.1%, with a high probability of recession during the first half of the year (a 1.3% GDP contraction) followed by 2.3% growth in the second half. Over the long-run, lower deficits and debt support relatively higher growth estimates, however.
In other words, this cliff involves the lowest deficits in recent history and, following a six-month contraction of 1.3%, a growth of 2.3% in the next six months and “over the long-run” relatively higher growth supported by lower deficits and debt. SOME FUCKING CLIFF!!! Cue Thelma and Louise.