Of course, the reason the fiscal cliff is looming in the first place is because of concerns over deficit spending, and the cliff represents a sudden and massive reduction in the size of the country’s budget hole. Not all the fiscal cliff’s policy changes arrive at once, but should all of them be enacted, the Congressional Budget Office predicts a new recession over the course of 2013.
The GOP’s fiscal cliff offer says nothing about retaining the payroll tax cut or emergency unemployment benefits (EUC), both of which end come January 1. But as the Economic Policy Institute found, extending EUC creates five times as many jobs per dollar of budget deficit as the Bush income tax cuts for the wealthy:
Extending just the upper-income Bush tax cuts would boost GDP growth by 0.1 percentage point, increasing nonfarm payroll employment in 2013 by only 102,000 jobs—far less than one-tenth the impact of continuing the temporary ad hoc stimulus measures. Continuing EUC would do three times as much in terms of GDP growth and support 300,000 to 400,000 jobs. In terms of jobs created per dollar of budget deficit, EUC is more than five times as effective as the Bush income tax cuts for the wealthy. Combine them with the Bush estate tax cuts and they are one-seventh as effective as EUC.
That’s consistent with earlier work from EPI which determined that the expiration of the stimulus measures and the scheduled cuts to government spending were by far the most economically damaging aspects of the fiscal cliff. Meanwhile, the end of the Bush tax cuts for the wealthy was far less severe — in fact, in dollar terms their expiration did more to repair the budget than to hurt job growth. CBO came to a very similar conclusion.
Allowing the payroll tax cut to expire would result in $1,000 less take home pay for the average family.