Unfortunately, going over the fiscal cliff has real economic effects, and the progressives who are claiming otherwise are irresponsibly pushing the country to unnecessary economic pain.
"If it lasts three weeks, I'm pretty sure we get a recession out of it," Princeton University economist and former Federal Reserve Vice Chairman Alan Blinder said Friday. "Once you start sliding downhill, once confidence is shattered…it takes a while to right the ship."
"Markets are putting a very low weight on the notion that we actually go over the cliff for more than three days," Mr. Blinder said. A delay beyond that "would really kick the chair out from under the markets' current belief" and trigger a wider reaction among investors and then consumers.
Steven Miller, acting Commissioner for the Internal Revenue Service, sent a letter to Capitol Hill urging the legislators to actually think about the consequences of going over the cliff, for even a little bit. It could be disastrous for tens of millions of taxpayers because of the difficulties imposed by the increasing burden of the Alternative Minimum Tax.
if an AMT patch is not enacted by the end of this year, the IRS would need to make significant programming changes to conform our systems to reflect the expiration of the patch. In that event, given the magnitude and complexity of the changes needed, I want to reiterate that most taxpayers may not be able to file their 2012 tax returns until late in March of 2013, or even later. This situation would create two significant problems: lengthy delays of tax refunds and unexpectedly higher taxes for many taxpayers, who will be unaware that they are newly subject to AMT liability. Moreover, if Congress were to act at some point next year to enact a new AMT patch, the time and substantial expense necessary for the IRS to reprogram its systems to reflect expiration of the patch would ultimately be wasted.
As we consider the impact of the current policy uncertainty on the upcoming tax filing season, it is becoming apparent that an even larger number of taxpayers - 80 to 100 million of the 150 million total returns expected to be filed - may be unable to file.
Despite the dangers of the fiscal cliff, Democrats continue to insist that their fallback plan is sufficient. President Obama has exhorted John Boehner and House Republicans simply to take up and pass S.3412, a bill that passed the Senate earlier this year. That bill consists solely of extending tax cuts for all but the top two tax brackets. The bill says nothing about the Alternative Minimum Tax. It says nothing about the defense sequester. It says nothing about the estate tax. It says nothing about the payroll tax cut. It's a symbolic piece of legislation that only would create future fights over parts of the fiscal cliff that would be left unresolved.
It has long appeared that Democrats are willing to go over the fiscal cliff, despite the economic damage that would be caused. Their preferred legislative option does little to deal with the fiscal cliff. And they have refused to consider any other options, while the clock continues to run.
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