Would going over the fiscal cliff help the U.S. in the long run?

President Obama visits a Pennsylvania manufacturing plant to make his case for action on the fiscal cliff.

(Image credit: Jessica Kourkounis/Getty Images)

last updated 8 January 2015

"Now that the elections are over, the fighting has really begun," says Megan McArdle at The Daily Beast. Republicans and Democrats are "playing a game of chicken" as they argue over a deficit-reduction agreement that will be necessary to avoid going over the fiscal cliff on Jan. 1. The Left is insisting on hiking tax rates for the wealthiest 2 percent of Americans, who make $250,000 or more; the Right is demanding deep cuts to Medicare, and extending Bush-era tax cuts for all; and both sides are waiting for the other to flinch first. "Going over the cliff would suck more than $600 billion worth of fiscal stimulus out of the economy in 2013 through a combination of tax increases and spending cuts," which "would be disastrous for everyone, including, one assumes, the politicians who lead us over the edge." But maybe it's the only thing that will scare everybody into attacking our real problem, which is that we're piling up a dangerous amount of debt because our government spends too much and takes in too little in taxes. McArdle explains:

Even a brief dive — a bungee jump, if you will — would be scary indeed. In its latest projection, the Congressional Budget Office predicts that the post-cliff economy would shrink for the first half of the year, at an annualized pace of 1.3 percent. While recovery should come in late summer, growth for the whole year would be a meager half a percentage point. That's a pretty grim picture given the still-sluggish state of the economy.And yet, our fiscal situation is so crazy that a few analysts have begun suggesting that maybe, just maybe, going over the fiscal cliff is our best hope. Bruce Bartlett, a former Reagan administration official and latter-day critic of the GOP's profligate spending during the administration of George W. Bush, recently wrote for The New York Times website about The Fiscal Cliff Opportunity. Peter Schiff, the head of Euro Pacific Capital, has been even blunter. The biggest risk is not that "we go over this phony fiscal cliff," Schiff said in a recent interview. "It's [that] the government cancels the spending cuts, cancels the tax hikes... [and] instead we end up going over the real fiscal cliff further down the road.""In fact," he added, "the real fiscal cliff comes when our creditors want their money back and we don't have it."

It is really too soon to tell if Obama is wasting time (albeit in a dangerously unhelpful manner). It is still preferable to try for a package that includes real spending cuts as well as entitlement and tax reform. If that becomes impossible, only then would the cliff look more attractive.For now, however, Senate and House Republicans are playing it right. They have even got the mainstream media to notice how unreasonable Obama's non-offer offer is. ("No concessions.") Some even recognized that the president's "offer" in response to the Republicans' move on revenue was identical to his post-election opening bid.

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The second reason that going off the fiscal cliff is not necessarily the worst outcome has less to do with economics than with politics... Republican refusals to talk about the possibility of letting the Bush tax cuts on those making over $200,000 per year expire was the reason why the "supercommittee" fell apart last year, which is the reason why the automatic spending cuts are going to happen in January. Again and again, Republican obstructionism has prevented the federal government from being able to budget effectively. So let's not extend the Bush tax cuts for the wealthy one more time, even if it would help avoid the fiscal cliff. Doing this would be bad policy, since tax cuts for the wealthy don't do much to stimulate growth. And it would reward a party that fetishizes hostage-taking and likely lead to more budget showdowns in the near future.

Harold Maass is a contributing editor at The Week. He has been writing for The Week since the 2001 debut of the U.S. print edition and served as editor of TheWeek.com when it launched in 2008. Harold started his career as a newspaper reporter in South Florida and Haiti. He has previously worked for a variety of news outlets, including The Miami Herald, ABC News and Fox News, and for several years wrote a daily roundup of financial news for The Week and Yahoo Finance.

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