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The Deliberate Confusion on the Fiscal Slope

Is the threat of the fiscal slope already hurting the economy? The GDP estimate shows business investment slowing, but that’s been a relatively permanent condition since the Great Recession (since before it, according to some analysts). Every now and again you get reports that the potential for fiscal cutbacks and resulting uncertainty has cost America jobs, but they typically come from self-interested groups (I generally wouldn’t trust anything the National Association of Manufacturers had to say). If you look at the industries truly affected by the fiscal slope, like the defense industry, for example, which bears half of the impact of the sequester by themselves, contractors aren’t necessarily cutting back and all showed robust third-quarter earnings.

Business leaders simply aren’t reliable in talking about the impact of the fiscal slope. They have lined up behind a debt deal, mostly as a ploy to get their own tax rates lowered, even if they snookered Jackie Calmes into thinking that these are patriotic men who would raise their own taxes for the good of the country. There’s no getting around the statement of these CEOs in support of “comprehensive and pro-growth tax reform, which broadens the base, lowers rates, raises revenues and reduces the deficit.” The idea that you have to lower tax rates in the context of a deficit reduction plan should show you the lack of seriousness around this ploy, as well as the transparency of it.

If there’s such a pressing need to cut the budget, then surely these business titans should have no problem going over the fiscal slope and tumbling down. The fiscal slope DOES cut the budget, to the extent that it completely wipes out the medium-term deficit. That’s what you businessmen want, yes?

If we had anyone concerned about the economy instead of optics in Washington, this would be such a teachable moment. The fiscal slope would send the economy into recession BECAUSE it reduces the deficit heavily in the near term. In other words, reducing the deficit right now is HARMFUL to the economy. Think of the implications of that in the hands of a decent orator. Think of the ways in which that could be discussed, in support of more public investment rather than less. But instead we get this muddle, where we have to replace the fiscal slope with a deal to reduce the deficit. That’s because the orator we have wants to use the fiscal slope as a “forcing mechanism” for the kind of deficit reduction he wants.

Congress will punt the fiscal slope to next year, in all likelihood. The President has competing vows, not to pass anything fiscal slope-related without letting the high-end tax cuts expire, and not to let the sequester, at least on the defense side, happen. So we’ll see how this all plays out. But the whole thing smacks of lost opportunity and deliberate confusion.

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David Dayen

David Dayen