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Over the last few years, both parties have worked together to reduce the deficit by more than $2.5 trillion – mostly through spending cuts, but also by raising tax rates on the wealthiest 1 percent of Americans. As a result, we are more than halfway towards the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances.

President Barack Obama
The State of the Union Address
February 12, 2013

Many years ago, a seasoned Capitol Hill professional cautioned me about giving any questionable number to a politician.  Many have fly-trap minds, and once you put something in, you never can get it out.  Any nuanced but only partially understood fact, like a discount-store blowtorch, could be misused with considerable ill effect at some later moment.

This bit of wisdom comes quickly to mind when one hears the current buzz about a mere $1.5 trillion of deficit reduction over ten years ending our budget woes.  Some reach that number by the roughest of arithmetic; others use more sophisticated analysis, and even provide important and subtle caveats.  But the number, even though it has some limited use, already has left the corral of qualification and analysis far behind.

The simple way to reach that number is the way the President did.  Three years ago, Erskine Bowles and Alan Simpson characterized our fiscal plight with a calculation that $4 trillion of deficit reduction would “stabilize the debt.”  As the President noted in his remarks, some have estimated subsequent budget action to have achieved $2.5 trillion of that.  $4 trillion minus $2.5 trillion equals $1.5 trillion, under either OMB (Office of Management and Budget) or CBO (Congressional Budget Office) scoring.

That little inside-Washington joke is not really a joke, however.  Bowles and Simpson’s $4 trillion was derivative of many complex and controversial assumptions, and was calculated at a particular time.  Let’s review the numerical spreadsheet, and its even-more-subtle and important conceptual underpinnings.

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The automatic tax increases and spending cuts that will be triggered on January 1, 2013, known as the “fiscal cliff,” are widely recognized to be bad policy.

The fiscal cliff would be bad for the overall economy.  The hit on the economy would be too large and too abrupt.  Numerous economic forecasters of all stripes predict that it would send the economy back into recession.  Given the pre-existing threats to the U.S. economy from global fiscal and financial crises, our own extreme housing overhang and our not-yet-fully-functioning financial system, a plunge over the cliff is far too risky.

The fiscal cliff is also poor budget policy; it would needlessly worsen the efficiency of the federal government.  The large across-the-board spending cut in the fiscal cliff is the wrong way to reduce agency budgets.  It cuts the highest priorities just as much as the others, and it does not allow shifting funds to restructure programs in a fundamental way.

***Click “Read More” to see the top business executives who endorse CED’s 4-step framework to avoid the fiscal cliff***

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National economies today are interdependent, as almost everyone understands.  That should be good news, in that strong economies can buck up the weak.  But it is bad news when most economies are weak.

And unfortunately today, the weakness of some economies extends beyond the obvious.  It includes failures of governance — specifically, failures to address critical problems.  This makes the situation of the United States — and of every other country — all the more dangerous.

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