(h/t Kevin Drum)
The left side is what happens if we jump off the cliff (Bush tax cuts, sequestration shenanigans, etc) and the right represents an extension of mostly everything (spending levels, tax rates, etc). As you can see there’s a good reason folks are nervous about the end of the year. Coupled with a lame-duck session of Congress — although, honestly, the non-lame-duck portions haven’t been much better — the looming possibility of everything on the left side happening now has numbers. Or words, in my case: Recession, (greater) unemployment, reduction of public debt to GDP ratio. The counter-reality is (more) tepid economic growth, (slightly) lower unemployment, and increase in the public debt to GDP ratio.
Now there is, as the bottom part of that CBO infograph notes, a middle path. The problem is that such a path is essentially the same theoretical middle-way that has existed the last two years – whereby a further reduction in (some) taxes or temporary increased spending would have near-term economic benefits. Such a policy would actually constitute, gasp, stimulating the economy. Considering that the right-side of Congress basically hates that idea it doesn’t seem promising moving forward for that kind of action to occur. This is because the downside of any fiscally stimulative measure, of course, is that either/both of those things would continue us down the current, and technically unsustainable, interstate of debt. Nevermind that either way those issues will need to be dealt with later, regardless of who holds office. Thus, the perpetual stalemate, assuming that something doesn’t “give” as a result of the upcoming elections.
One last thing on answering the question of “What Happens?” in regards to the fiscal cliff, via Jeff Spross on Twitter yesterday:
1. Medicaid plays a role for 20 percent of Medicare beneficiaries and 70 percent of nursing home residents.
2. The elderly and disabled account for a majority of Medicaid spending.
Romney’s insistence about his Medicare plans not affecting current seniors belies the fact that his plan to reduce Medicaid funding will very much affect current seniors. Given his promise to not touch Medicare for ten years (which by then he would out of office), his promise to immediately affect Medicaid makes those cuts much more serious and real to elderly Americans.