Fiscal Cliff and the Washington Budget

Richard Davis of the Washington Research Council posted today about the risks facing the Washington State budget. I don’t always agree with Dick, but he usually has something to say worth listening to. I do agree with him this time, that the largest risk we currently face is that Congress will fail to come to an agreement on how to handle the budget before automatic sequesters kick in.

We would see tax increases and spending cuts at a time when most responsible economists think that they would do significant damage to the economy. He says:

Domestic politics, though, are the greater threat. At the end of the year, absent presidential leadership and congressional action, the nation heads off the fiscal cliff. That’s when the Bush-era tax cuts expire and the automatic spending cuts adopted in the 2011 debt ceiling negotiations kick in.

Higher taxes and reduced spending will strangle an already gasping recovery. The Congressional Budget Office says that unless Congress relaxes fiscal restraints, the economy will go into recession in the first two quarters of 2013.

It’s worth reading the whole post. The comments I posted on his blog:

I share these concerns. From the Legislature’s point of view we are hoping everyone in the world decides all of a sudden that they should behave like adults, not like squabbling children.

Destroying the Euro does not sound like a good idea, nor does the level of budget cuts Congress is considering.

If we make drastic cuts to protect against a downside that hasn’t occurred yet we do the same damage locally we don’t want Congress to do at the national level, and it’s not really clear we could hedge against a double-dip recession at this point anyway.

The feds should take up a plan that makes long-term changes to entitlements (including defense spending) and revenue, but not destroy the economy in the short run. Perhaps that’s the structure of a deal. Wait, didn’t Simpson and Bowles already do this dance…

Author: Ross

I am the Director of the Department of Early Learning for Washington State. I formerly represented the 48th Legislative District in the State House of Representatives, chairing the Appropriations committee and spent many a year at Microsoft.

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