With the election over, Wall Street is now obsessing over the possibility that the "fiscal cliff" negotiations may end in stalemate.
Well I have news for them: a stalemate would be good for the U.S. economy, and any deal that does not preserve most of the fiscal cliff is not worth having.
By ending Social Security tax relief, the Bush tax cuts and cutting spending on both defense and domestic programs, the "fiscal cliff" cuts a deficit projected by the Congressional Budget Office (CBO) at $10 trillion over the next 10 years down to $2.3 trillion.
Contrary to all of the media caterwauling, that's not a dreadful fate.
In fact, it is exactly what we ought to be doing, since it solves 77% of the deficit problem in one fell swoop.
Of course, lovers of low taxes (which includes me) will claim that we should not support the "fiscal cliff" because it will raise taxes on everybody. But honestly, what's the alternative?
The reality is that President Barack Obama won the election and that he passionately wants to raise taxes on the rich. It's more important to him than any other outcome from this negotiation.
In setting out his objectives he twice reiterated that he was non-negotiable on tax hikes for the rich, and wanted to close the budget gap primarily by tax increases.
And guess what: Tax increases in budget negotiations are much more real than spending cuts, because once the legislation is written, they always happen, whereas politicians often find a way to weasel out of a spending cut deal once the klieg lights are off.
Thus, given the Republicans' weak negotiating position, it's likely we'll end up with the tax increases on the rich anyway.
However, tax increases alone will do little to reduce the deficit.
To continue reading, please click here...