The same is true of most of the fiscal cliff tax changes. The CBPP points out — again quite correctly — that the individual income tax increases will not immediately reduce taxpayers’ cash flow by the total but rather by a very small amount. And the increase in the alternative minimum tax for those who become subject to it for the first time in 2012 because it isn’t fixed by Dec. 31 won’t be felt at all until each taxpayer files her, his, or their tax return for the year. Given that a taxpayer doesn’t typically receive the W-2s they need to file until later in January, that means that there will be plenty of time to deal with this retroactively before it starts to bite.
These spending cuts and tax provisions alone make up more than half of the projected direct effect of the fiscal cliff. Add the limited immediate effect of the other provisions, and the fiscal cliff becomes one of the biggest misnomers and misconceptions in federal budget history.
That’s a good thing because, as I’ve explained in a previous column, last-minute, desperate legislating in a lame-duck session of Congress in general is never a good idea. It’s especially not something that should be planned or hoped for when the decisions, like these, are potentially momentous and the time pressures appear to be extreme. In the current hyper- partisan take-no-prisoners political environment in Washington that could be even worse between Election Day and the start of the next session of Congress, that’s a recipe for a policy disaster.
That’s why the CBPP analysis is very good news. The wisdom that has become increasingly common since Bernanke first uttered the phrase “fiscal cliff” is not as accurate as we’ve been told up to now.
Yes, as the Congressional Budget Office pointed out in its bold report from several weeks ago, the combination of spending cuts and tax increases that will occur Jan. 1 and 2 will, if they’re not modified, push the U.S. economy into a recession.
But that won’t happen instantly and, no matter what’s being said, Congress and the White House don’t have to agree to just any deal to resolve the situation by the time these policies are triggered to prevent the projected damage.
Stan Collender is a partner at Qorvis Communications and founder of the blog Capital Gains and Games. He is also the author of “The Guide to the Federal Budget.”