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Technically, if there’s no deal today, then we hit the Fiscal Cliff.This might not be a big deal if spending cuts and tax hikes are mitigated fairly early in January.
Because technically the economy won’t tank tomorrow, some have preferred to call it a “Fiscal Slope” and economically speaking there’s merit to that.
But politically speaking it may be problematic.
Back in early December, BofA’s Ethan Harris wrote in a note that it was a “dangerous” idea that going over the Cliff would be unproblematic.
His main concern was that the political situation would deteriorate once we “went over” and everyone started assigning blame:
… there is an assumption that going over the cliff means a better deal. Why would that be? After all, the party that is seen as causing the jump bears most of the political blame. Isn’t it more likely that going over the cliff triggers a “blame game” between the two parties and they simply end up with the same deal as they would have gotten had they not gone over the cliff?
…there is more than one party in this “game” and if one party chooses an aggressive path of brinkmanship, so can the other. If Democrats decide to let the tax cuts expire, Republicans could decide to let the sequester kick in or the debt ceiling expire. This gives Republicans the upper hand on spending cuts: they can now pick and choose which cuts to agree to reverse and which to allow to stay permanent.
Yesterday the vibe was OK in Washington. At one point, Harry Reid even praised Mitch McConnell for negotiating in good faith. But tomorrow, if there’s no deal, and the media is freaking out showing graphics about how we just plunged into the Thelma & Louise canyon, then it could all collapse fast, killing momentum, and causing both sides to dig in and attack the other.
So will we hit the cliff?
If you read the WaPo’s latest update, it doesn’t appear as though the sides are that far apart. The Dems, reportedly, have given up on the $250K threshold, and are now more in the $450K range. McConnell wants it higher, but the gist is that it’s mostly about lines, and not big concepts at this point.