Congress should go over the so-called "fiscal cliff" at the start of next year if it means they can reach a better deal for reversing the impacts of the "cliff" and achieving long-term financial stability, Moody's Analytics chief economist Mark Zandi told Congress today.
"I would not come up with a deal unless it's a really good deal before the end of the year," Zandi told members of the Joint Economic Committee in a hearing today. "I would take it into next year if that means a better deal."
The "fiscal cliff" refers to a series of tax increases and spending cuts slated to kick in at the start of the new year unless Congress acts. Among other things, it includes the expiration of the Bush-era tax cuts, the expiration of the payroll tax holiday Mr. Obama enacted, and around $1.2 trillion in cuts across the board to both defense and non-defense programs. If Washington never addressed the "cliff," it would significantly reduce the deficit but also send the nation into another recession, Zandi and other economists agree.
Zandi said he thinks Congress could extend negotiations into as far as February.
"You've got to nail this down," Zandi stressed today. "Uncertainty is killing us. It's hurting business investment... It hasn't affected hiring and layoff decisions yet, but it will. If we get into next year and we get into February, and we haven't nailed this down, the economy will begin -- and investors will bail and the economy will begin to struggle."
Congress not only needs to avert the "cliff," the economist said, but also address the nation's long-term fiscal sustainability by modifying entitlement programs like Social Security and Medicare, and it must extend the debt limit.
"I don't think you can break this apart," Zandi said. "Nailing down the tax code, nailing down spending cuts, nailing down the debt ceiling, nailing down long-term fiscal sustainability... that is a good deal, and that is the only deal that I think works."
Zandi added he is "skeptical" that it can get done before the end of the year, but he added, "I think it can be done by early next year before it can do significant damage."