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Former Secretary of labour Robert Reich thinks the phrase “fiscal cliff” might be a bit of an exaggeration – or at least a misnomer.In a new article for the Financial Times, Reich says it’s more likely to play out like a “gentle hill” due to the current strategic positioning by Republicans and Democrats.
Reich writes that since Democrats think Republicans have more to lose by going over the fiscal cliff, they’ve decided to wait it out.
This will drag political negotiations well into 2013.
Democrats also assume that, once the Bush tax cut has been terminated, Republicans will be unable to resist an offer to reduce taxes on the middle class (those earning $250,000 or less). After all, Republicans have pledged to vote for any and all tax cuts. Once Democrats get the best deal they can, they will make it retroactive to January 1st.
As a practical matter, then, negotiations over America’s budget deficit will drag on into the new year, right over and beyond the fiscal cliff. And because everyone will know that the final compromise is going to be retroactive to the start of the year, the cliff won’t feel like much of a cliff. In practice, it will be more like a hill whose slope remains uncertain but will almost certainly be gradual.
So, even if we go over the cliff, politicians could magically rewind the tape with a retroactive legislation.