Once again the media is doing a very poor job of reporting a complex issue. Some how an agreement to cut federal government spending has turned into a "Cliff" that is 100% guaranteed to plunge the economy into recession. We don't think so. Reducing government spending will certainly trim current GDP growth by perhaps 0.5% it has some long term benefits. Paying down the debt will stabilize government finances, boost confidence and keep interest rates low.
The Fiscal Slope is also gradually phased in over the next year. It cuts military spending and domestic discretionary spending while leaving social security and medicare untouched. The immediate, January 1st effect is to stop the Bush taxes cuts and return the social security payroll tax to the pre-recession level of 6.2%.
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