It was the Democratic talking point throughout last year's debt ceiling debate, "The Tea Party is taking the economy hostage," but now in a role reversal from last year, Democrats are the ones threatening economic ruin in an effort to wring concessions from Republicans. In this case, it's the so-called "fiscal cliff," the $600 billion worth of tax hikes and spending cuts that Democrats will allow to go into effect in January (so they say) unless Republicans drop their resistance to more taxes on the richest Americans. The negotiating tactic was floated by Senate Majority Leader Harry Reid in May and now the rest of the party is falling in line.
In a speech scheduled for later today, Sen. Patty Murray, the Senate's No. 4 Democrat, will give the clearest threat yet of the party's willingness to leap head first off the fiscal cliff. “If we can’t get a good deal, a balanced deal that calls on the wealthy to pay their fair share, then I will absolutely continue this debate into 2013,” read Murray's prepared remarks, leaked in advance to The Washington Post. Meanwhile, President Obama is vowing to veto any GOP attempt to preserve the Bush tax cuts on income over $250,000 per year, a promise he made to fellow Democrats last week. The tough stance will surely open up Democrats to similar charges thrown around last year about one party threatening to stunt the economic recovery for purely ideological reasons. But does the charge hold up?
The left insists the stakes were much higher during the debt ceiling standoff last year. The "so-called fiscal cliff is baloney," write's AlterNet's Marshall Auerback, who calls the dispute a "manufactured issue." Chad Stone, an economist at the left-leaning Center on Budget and Policy Priorities, agrees somewhat. “This is not a Wile E. Coyote moment where you have the economy plummeting on Jan. 2,” he wrote in a recent analysis. “You have some time to implement policy to address the weak economy in the short term and the deficit in the long term.”
But that's not shared by everyone. In a joint column in The Washington Post by economist Chad Moutray and National Association of Manufacturers vice president Dorothy Coleman, they argue that real harm could come of the fiscal cliff. "If these tax increases kick in, the nation risks a recession in the first half of 2013, according to the Congressional Budget Office. The United States already has the highest corporate tax rate in the world, and if the tax relief expires, the two-thirds of manufacturers that operate as 'pass-through' entities and pay taxes at the individual rate would face even higher tax bills," they write. "Pending across-the-board cuts in defense spending will also place a drag on the national and local economies."