The Sensible Solution to the "Fiscal Cliff"

A blog about business and economics.
Oct. 10 2012 2:34 PM

The Sensible Solution To the "Fiscal Cliff" Is To Just Not Do Any Of It

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WASHINGTON - APRIL 29: Sen. Chuck Schumer (D-NY)(L), Sen. Robert Menendez (D-NJ)(2nd-L), Senate Majority Leader Harry Reid (D-NV) (2nd-R) and Sen. Richard Durbin (D-IL)(R), participate in a news conference on immigration at the Capitol on April 29, 2010 in Washington, DC.

Photo by Mark Wilson/Getty Images

I want to say something more substantive about Chuck Schumer apparently throwing a wrench in the works of the "grand bargain" but first just a simpler point. The entire "fiscal cliff" dilemma has a very simple resolution:

— Extend all the Bush tax cuts for some period of time.
— Extend the payroll tax cuts for the same period of time.
— Delay the implementation of the domestic sequester cuts for the same period of time.
— Delary the implementation of the military sequester cuts for the same period of time.
— And life goes on.
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That is, obviously, not perfectly optimal policy. But in general, you raise taxes when the deficit is too big. You cut spending when the deficit is too big. And right now the deficit is too small. We've hit upon an entirely self-generated problem that congress could easily solve by simply choosing to kick the can down the road for another 12 or 24 months. A partisan debate about the best approach to deficit reduction would be a great thing to have at some future point when the deficit is a problem, but having it right now is absurd.

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