The verbal sparring between President Obama and Paul Ryan over the GOP budget brought deficit reduction back into the spotlight this week.
On the campaign trail we expect the jabs will continue, but the real work of legislating taxes, spending cuts, and the debt ceiling won't begin until after election day.
And at that point, lawmakers will have to move quickly.
On December 31, a number of policies that have significant fiscal implications for the economy and individuals will expire or kick in. Among those set to expire are the 2001 Bush tax cuts, the payroll tax holiday, and extended unemployment benefits.
At the same time, across-the-board spending cuts totalling $1.2 trillion over ten years kick in as a result of the Super Committee's failure to reach an agreement last Fall.
Such increases in taxes and cuts in spending would put the deficit on a sharp downward trajectory -- but at a cost.
In visual terms, while we have been warned for so long that the country is building a "mountain of debt," we're suddenly facing the possibility of falling off a "fiscal cliff" if Congress doesn't intervene. The Committee for a Responsible Federal Budget charts it for us below:
While it might look like good news for deficit hawks, such a sudden debt reduction resulting from the blunt instruments of expiring tax cuts and across-the-board spending cuts would slam the brakes on an economic recovery.
CRFB is instead urging lawmakers to use the looming deadlines as an opportunity to review policies that are contributing to debt growth and implement "well thought-out entitlement and tax reforms" now. Notably, that does not mean extending current policy with its current debt trajectory -- that would be the "worst-case scenario" according to CRFB. The recommendations they propose would give us a softer landing somewhere between the mountain of debt and the fiscal cliff (which happens to be the title of their paper on the subject: "Between the Mountain of Debt and the Fiscal Cliff").
Cliff image via Shutterstock