It's bad enough when economists contradict each other, but it's even more frustrating when they contradict themselves. Or, as George Bernard Shaw once observed, if all economists were laid end to end, they still wouldn't reach a conclusion.
That thought came to mind last week when the Congressional Budget Office reported that "Taxmageddon," the combination of expiring tax cuts and spending cuts scheduled to take effect in January, could push the nation back into recession. That's a worrisome prospect that appears to have gotten the attention of Congress.
Already, Republicans and Democrats are pushing their versions of a possible solution. House SpeakerJohn A. Boehner has promised a vote before the November election to extend the Bush tax cuts. He's also pledged to require deep spending cuts before agreeing to lift the federal debt ceiling before the end of the year.
Democrats seem to be ceding ground on the Bush-era tax cuts, too. Rep. Nancy Pelosi has suggested extending the Bush tax cuts for those earning $1 million or less per year — a long way from the $250,000 limit Democrats and President Barack Obama have supported in the past.
But all the talk about preserving tax cuts and cutting spending ignores what the CBO report actually says. The analysis frets not just about tax cuts and spending cuts but about growing the deficit (or shrinking it too much), too. In other words, the authors are against substantially raising taxes, cutting spending or increasing the deficit (or shrinking it too much).
Sound self-contradictory? Actually, it isn't. What the CBO fears is the effect of falling off a "fiscal cliff," a sudden change in federal fiscal policy — either in taxes or spending — that would harm the U.S. rate of economic growth, which is already forecast to be weak-to-moderate in the first half of 2013.
The CBO recognizes three options for policymakers: Loosen fiscal restraints in the short term (although that would worsen the long-term problem); impose much greater fiscal restraint now (bad in the short term); or a combination that might widen the deficit in 2013 but would reduce deficits in the long term.
That last option is clearly the most sensible. But it would require not only taking steps to avoid Taxmageddon but Democrats and Republicans reaching some kind of long-term deficit-reduction deal. Essentially, it takes everyone back to last summer, when a budgetary standoff brought the country to the edge of default and caused the Taxmageddon deadline to be created in the first place.
With an election looming, the danger is that Congress will simply engage in a series of meaningless votes in the weeks to come for the sake of playing to their respective bases. The House will pass a plan that has no chance in the Senate, which will be stuck in partisan gridlock. Meanwhile, the government will have to prepare for the worst, including the looming large reductions to military spending that the GOP claims not to want.
That the two sides have so far failed to reach a compromise to prevent the interest rate on Stafford student loans from doubling in July doesn't bode well. Republicans and Democrats claim to want a compromise, yet they can't agree on a measly $6 billion plan. How could they possibly agree to an overall budget plan involving hundreds of billions?
It would be nice to think that members of Congress might put aside their differences for the sake of the nation and hammer out a balanced plan that involves modest tax increases and spending reductions — exactly the sort of moderation and shared sacrifice that the CBO report seems to endorse. But it's hard to see how Republicans would ever willingly sign onto such a plan that raises taxes before the November election — or for the Democrats to agree to budget reductions that hit moderate and low-income voters the hardest for the sake of tax cuts for the rich.
Post-election, the lame-duck Congress is likely to be in a remarkably similar position. No matter who wins, nobody expects Republicans or Democrats to capture a 60-vote majority in the Senate. If anything, the two sides might emerge more entrenched and adversarial. The only difference? Less than two months will be left before Taxmaggedon comes.