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Center for Economic and Policy Research

Washington Post Pushes Mayan End of the World Story on "Fiscal Cliff"

Yes, the Washington Post is getting very worried that it will have egg all over its face if January 1 comes with no budget deal and we don't get its promised recession. The paper pushed this line yet again, telling readers:

"Unless the House and the Senate can agree on a way to avoid the “fiscal cliff,” more than $500 billion in tax increases and spending cuts will take effect next year, potentially sparking a new recession."

Of course the potential for a new recession does not refer to missing the January 1 deadline. It is the risk the country faces if we continue well into 2013 paying higher tax rates and with large cuts in spending. This is an enormously important distinction.

This is not the only important distinction missed in this piece. It told readers that President Obama and Speaker Boehner were very close to a deal:

"Boehner offered to raise $1 trillion in fresh revenue, and he wanted spending cuts of equal size. By that measure, Obama’s tax offer was $300 billion too high and his cuts $150 billion too low, for a net difference between the two men of about $450 billion — less than 1 percent of projected federal spending over the next decade.


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In the end, however, the gap proved to be much wider politically than it was numerically."

Actually, Boehner never specified the tax increases that raised $1 trillion in fresh revenue. (If he did, the Post did not bother to report them.) So it is not clear how far apart they were. It is also likely that one of Boehner's big revenue raisers would have been a cap on deductions, including the deduction for state and local taxes. This would make it far more difficult for states like New York and California to maintain their current level of taxation. President Obama would find considerable resistance among Democrats to this sort of deal.

The piece also refered to Senator Lindsey Graham's warnings that the country could end up like Greece. It should have pointed out that Graham is either ignorant of economics or was trying to needlessly scare his audience since there is no way the United States can end up like Greece.

The United States borrows in its own currency, which means that it will always be able to pay its debt. Its worst risk would be inflation, which is a very remote risk at the moment. Greece, on the other hand is like Ohio. It cannot borrow in its own currency. The Post should have pointed out this distinction to its readers since some might have taken Lindsey's scare story seriously.

The piece also tells readers that Starbucks decision to make employees write "come together" on cups is a "sign of mounting anxiety over Washington gridlock." While anxiety may explain the motivation of Starbucks CEO Howard Schultz, he may also just want to curry favor of the powerful executives in the Campaign to Fix the Debt and win praise from their allies in elite media outlets like the Washington Post. Since Schultz's motives are not known, a serious newspaper would just report his actions without implying that it knew his motives.

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