The former Calpundit and Political Animal econowonk, now with Mother Jones, explains it all for you:
Which part has the worst effect: the spending cuts or the tax increases?
That’s tricky! CBO estimates that the effect per dollar is greater for spending cuts than tax increases: roughly a dollar of GDP for every dollar of spending cuts versus about half a dollar of GDP per dollar of tax increases.
However, the absolute size of the tax increases is much larger than the absolute size of the spending cuts. Overall, CBO estimates that the spending cuts will reduce GDP by about 0.8 percentage points; the end of the payroll tax holiday will reduce GDP about 0.7 percent; and the expiration of the Bush tax cuts will reduce GDP by 1.4 percentage points.
But wait a second. There are two parts to the Bush tax cuts: the middle-class cuts and the cuts for the rich.
Right. And here’s the thing: CBO figures that letting the middle-class tax cuts expire would shrink GDP about 1.3 percentage points.
But that’s almost the entire effect of letting the Bush tax cuts expire.
Right. And everyone agrees we should extend the middle-class tax cuts. So if we did that, but let the tax cuts on the rich expire, it would have virtually no impact on growth.
So that would make a ton of sense. Are we going to do that?
Good question! Republicans are dead set against it, so it’s going to be a big fight.
What about the payroll tax holiday?
Everyone seems willing to let that end, so that’s not really very controversial.
Why is that? It has a pretty big effect.
Beats me. It would make a lot more sense to extend the payroll tax holiday than to extend the Bush tax cuts for the rich, but Republicans are opposed to the tax holiday and Democrats have already caved in on this. Mostly it’s because they’re worried that extending it would set a precedent for keeping payroll taxes lower forever, and that would hurt Social Security’s finances.
Conversely, Republicans care a lot about tax cuts for the rich. At the moment, they claim they’ll kill any deal to avoid the fiscal cliff unless they get to keep them.
Are they serious?
There’s more, but that’s the gist. Having just been told by voters not to blow up the economy any more, the GOP is dead set on doing and the Dems are less than fully dead set on stopping them. Sigh.
There is some good news, though. President Obama has been asking the Republicans for $1.6 trillion over 10 years in tax increases ever since the Great Debt Ceiling Joke of 2011. He campaigned for a year on that very proposal. And on Nov. 6, he won by a — what’s that word, again? Oh, yeah, landslide. So, Mitch the Turtle and the Weeping Cheeto can just take that.
Oh, and Kevin also says, for the love of God, stop talking about raising the retirement age.