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Economist Offers Perspective on Federal Budget Deadlines

GRAPHIC: The baseline shows the potential impact of the fiscal cliff on the deficit. The alternative would be if many of the cuts are put off. A Congressional Budget Office Graph from this August showing federal debt held by the public as a percentage of GDP.
GRAPHIC: The baseline shows the potential impact of the fiscal cliff on the deficit. The alternative would be if many of the cuts are put off. A Congressional Budget Office Graph from this August showing federal debt held by the public as a percentage of GDP.
December 20, 2012

LITTLE ROCK, Ark. - The White House and Congressional Republicans are still talking about how to avoid the so-called "fiscal cliff" at the end of the year. So, if the deadline is missed, will the effects on Arkansas and across the country really be like falling off a cliff?

Jared Bernstein, a Senior Fellow at the Center on Budget and Policy Priorities, says "no," because the expiring tax cuts would not be apparent until folks filed their 2013 tax returns...in 2014.

He explains that as long as a deal is on the way, Americans can avoid the worst even if the deal isn't signed by Dec. 31.

"If it looks like there is a deal solidly in the making, then the ramifications of going over the 'cliff' will be short-lived. They could be reversed pretty quickly."

Arguing that entitlements are driving the deficit, Republicans in Congress voted to cut Medicaid sharply. They also voted to raise the age at which people can qualify for Medicare, while also reducing Social Security benefits.

Bernstein says those changes would land hardest on seniors and the poor. He calls the plan to raise the age for Medicare a particularly bad idea, because it shifts costs directly onto the elderly. He says it would also drive up health care costs for the whole system.

"We're taking the youngest and healthiest elderly out of the more efficient part of the system, and making them the oldest and least healthy people in the more inefficient part of the system. They're very likely to be uninsured, which will end up costing more, and be much worse for them."

He says a rise in tax rates for the wealthy looks likely. Republican proposals to dramatically cut Medicaid, Medicare and Social Security look less likely at this point.

More information about the fiscal cliff is available from the Center on Budget and Policy Priorities.

Deborah Courson Smith/Deb Courson Smith, Public News Service - AR