More clarity on the ‘fiscal cliff’

This Baseline Scenario post makes it clear that “…the expiration of the Bush-Obama tax cuts will, on its own, eliminate roughly half of the long-term gap between federal government revenues and expenses” which which will reduce the pressure to cut entitlements. In addition, the automatic spending cuts will not effect Social Security or Medicaid and Medicare will take a 2% hit.

The author, James Kwak, does allow that there is a tension between preserving entitlements and reducing unemployment: “You may be torn between two objectives: preserving social insurance programs for the long term and reducing unemployment in the short term. But you have to recognize that the fiscal cliff is unambiguously good for those social insurance programs. Otherwise you’re not making sense.”

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