Robert Kuttner: Recipe for a Double Dip Recession [View all]
With the economy just barely on a path to durable recovery, some very dumb fiscal chickens are coming home to roost on January 1 of next year. This grim coincidence is known as the Triple Witching Hour.
First, the legacy of last summer's ill-fated bipartisan fiscal bargain -- an automatic set of budget cuts totaling $1.2 trillion -- kicks in next January 1. Second, President Obama's temporary payroll tax cuts expire. And third -- this is a good witch -- all of President George B. Bush's tax cuts sunset.
Just for good measure, there is yet another witch. The temporary extension of the debt ceiling will also expire around the first of the year, giving the deficit hawks of both parties even more leverage.
The trouble is that all of this adds up to a massive fiscal contraction. If you want to snuff out a fragile recovery, there is no better way than to cut spending and otherwise shrink the federal deficit prematurely. If anything, the economy needs more public spending for at least a year or two to compensate for the hit to private purchasing power and the housing collapse. .....................(more)