WASHINGTON — The dealmakers who warn that a year-end plunge off the “fiscal cliff” would be disastrous don’t seem to be rushing to stop it. Why aren’t they panicking?
For one thing, the Dec. 31 deadline is more flexible than it sounds. Washington negotiators know they can finagle more time if they need it.
That doesn’t mean delay would be cost-free. Stock markets might tank if 2013 dawns without a deal. But Americans could be temporarily spared many of the other ill effects if Congress and President Barack Obama blow past their deadline.
The Obama administration would have power to delay some of the tax increases and spending cuts that would officially take effect as January begins.
Then, if an agreement is reached early in the year, it could be applied retroactively to wipe them out.
Some lawmakers even argue that briefly going over the cliff is the best way to force a compromise. The Obama administration on Wednesday indicated it would take the plunge if necessary to ensure that the wealthy end up paying higher tax rates.
Pushing the deadline too far is a risky strategy, however. The Congressional Budget Office predicts that the fiscal cliff policies, if left unchecked, would spark a recession later in 2013 and send the unemployment rate above 9 percent by fall.
Democrats led by Obama and Republicans led by House Speaker John Boehner say it’s critical to reach a deal this month. Yet both sides appear dug in over taxes. And their two plans are far apart on how much to cut spending while the economy is still recovering from the last recession.
A good chunk of the fiscal cliff — the automatic spending cuts known as the “sequester” — is an artificial deadline created by Congress in hopes of forcing itself to come up with a deficit-cutting plan. It arrives at the same time as the expiration of the George W. Bush-era income tax cuts and other temporary tax breaks scheduled to end unless Congress extends them.
Together the taxes and cuts would equal close to $700 billion in deficit reduction over 2013.
Congress could vote to override all this and essentially freeze taxes and spending where they are now while the economy heals. But Obama and lawmakers, especially Republicans bent on budget-cutting, see the fiscal cliff as the critical moment to overcome inertia on the nation’s long-term debt crisis.