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They don’t call it the “cliff” for nothing. It’s the fiscal spot where a nation’s representatives can gather and cry doom. It’s the place—if Washington is to be believed—where, with a single leap into the Abyss of Sequestration, those representatives can end it all for the rest of us.
In the wake of President Obama’s electoral victory, that cliff (if you’ll excuse a mixed metaphor or two) is about to step front and center. The only problem: the odds are no one will leap, and remarkably little of note will actually happen. But since the headlines are about to scream “crisis,” what you need to understand American politics in the coming weeks of the lame-duck Congress is a little guide to reality, some CliffsNotes for Washington.
As a start, relax. Don’t let the headlines get to you. There’s little reason for anyone to lose sleep over the much-hyped fiscal cliff. In fact, if you were choosing an image based on the coming fiscal dust-up, it probably wouldn’t be a cliff but an obstacle course—a series of federal spending cuts and tax increases all scheduled to take effect as 2013 begins. And it’s true that, if all those budget cuts and tax increases were to go into effect at the same time, an already weak recovery would probably sink into a double-dip recession.
But ignore the sound and fury. While prophecy is usually a perilous occupation, in this case it’s pretty easy to predict how lawmakers will deal with nearly every challenge on the president’s and Congress’s end-of-year obstacle course. The upshot? The US economy isn’t headed over a cliff any time soon.
A peek at the obstacles ahead makes that clear.
Across-the-board spending cuts threaten to shave roughly 9 percent from discretionary spending in the federal budget. Those cuts, known in Washington parlance as “sequestration,” are the results of an agreement between Congress and the president and are scheduled to take effect on January 2. If they were to actually happen, they would reduce Pentagon spending, as well as funding for a vast array of domestic programs ranging from cancer research and food safety to grants for disadvantaged public schools.
For different reasons, neither Democrats nor Republicans want sequestration to happen—and it was never intended to. It was originally meant as a threat so terrible that lawmakers would hammer out a bipartisan, deficit-reducing budget compromise to avoid it. The very fact that sequestration is now in the pipeline crystallizes what’s wrong in Washington—and to understand how lawmakers will deal with it, a back story is needed.
Last August, a group of House Republican lawmakers nearly refused to raise the debt ceiling—the limit Congress places on its own borrowing—even though failing to do so would have shut down the government and raised interest rates for everyone. As part of a last-second bargain-basement deal to avert that disaster, Congress agreed to one dollar of deficit reduction for every dollar added to the debt ceiling. Lawmakers settled on a debt ceiling $2.4 trillion higher and deficits $2.4 trillion lower over ten years. In other words, they wrote into law a purely arbitrary level of deficit reduction. It had nothing to do with what the best available experts believed about how soon and how much to reduce deficits.