The deal that Congress came to on the fiscal cliff last week was a combination of half-measures, compromise, and kicking-the-can that nobody seemed to like but was overwhelmingly approved. Most of the meaures that constituted the cliff stood poised to harm the economy over the next two years – and Congress’ failure to offset the cost of averting the cliff will result in a worse economy in the long run.
As Americans everywhere found out with their first paychecks of the new year, Congress failed to reauthorize the temporary payroll tax cut that expired. This could result in between 300,000 and 1.3 million fewer jobs created over the next two years. Reauthorizing the payroll tax cut, however, would have needed budget-tightening offsets to minimize long-term damage to the economy.
While the effects of the high-income tax hikes will be somewhat mitigated due to Congress raising the income threshold, it’s still going to cost the economy some jobs in the short-term.
Economist Peter Morici estimates that unemployment will remain steady next year when what obviously needs to happen is that the economy grows and unemployment shrinks. And in the long-term, Morici writes, “the likelihood of a downgrade in the U.S. credit rating by Moody’s is increasing, and this will weigh on the investment plans of many U.S. multinational corporations.