Federal taxes as a percentage of GDP are the lowest they've been since you started paying taxes, and federal spending as a percentage of GDP is the highest. The result is a trillion dollar deficit and weaning an economy of that mix of tax breaks and stimulus spending is like weaning a junkie from heroin. There is no graceful way to do it.
This massive deficit is simply not sustainable but there is no way that Republicans will agree to raise taxes a single dime and no way that anyone - Republican or Democrat - could propose a trillion dollar spending cut without committing political suicide and gutting long-established programs.
Which brings us to our fiscal cliff, which will automatically cut discretionary spending by about 10% and raise taxes on the typical family by about $3,446.
For the last few years, taxes as a percentage of GDP have been 15-some percent. From 1960 to 2008, they averaged 18.1%, and ranged from 16.1 to 20.6%. We're at a new low for taxes.
During that same half century, 1960 to 2008, federal spending as a percentage of GDP has averaged 20.2%, ranging from 17.2 to 23.5%. The last few years it's been 24 to 25%. Again, to put it simply, we're at a new high for spending.
It's no mystery that the lowest taxes combined with the highest spending in half a century have created a record deficit.
Until taxes are sharply increased, Republicans' call for lower taxes makes about as much sense as legislation to protect the unicorn from extinction. However, if spending is slashed and taxes are hiked, the usual arguments out of Washington might actually make sense again. An automatic tax hike might pave the way for reasonable, targeted tax cuts. Automatic spending cuts might make proposals for new spending in target areas a great idea. Falling off the fiscal cliff may not knock sense into the usual debaters but it might re-align their arguments from ridiculous to marginally plausible.
This fiscal cliff is likely to cause another recession. Whether it is mild or severe will have as much to do with Europe and China as our own economy. This brings risk to the economy but it seems as though the graceful exit from fiscal madness is closed for repairs. Let's just hope that the crash at the bottom of the cliff doesn't include a gratuitously spectacular explosion.