In my column today I look at threats to the September revenue forecast, with a particular focus on the fiscal cliff. As we noted in our earlier post, the forecast council acknowledges a 40 percent probability that state revenues will come in substantially below the baseline projection (that’s the pessimistic forecast). The usual risks are cited: Eurozone uncertainty, global political upheaval, slowing Asian economies.
As I write today:
Domestic politics, though, are the greater threat. At the end of the year, absent presidential leadership and congressional action, the nation heads off the fiscal cliff. That’s when the Bush-era tax cuts expire and the automatic spending cuts adopted in the 2011 debt ceiling negotiations kick in.
Higher taxes and reduced spending will strangle an already gasping recovery. The Congressional Budget Office says that unless Congress relaxes fiscal restraints, the economy will go into recession in the first two quarters of 2013.
Another study cited in the column is from the American Council for Capital Formation, which finds
if the higher taxes go into effect in January, the “economy ends up losing 2.8 million jobs” a year between 2013 and 2017.
The negative consequences are avoidable, but stymied by a partisan staredown.
… the stalemate stalls growth, increasing the likelihood that state revenues will come in below projections. The September forecast is the one to watch. It frames the final weeks of the campaigns season. At that point, expect gubernatorial and legislative candidates to focus on the coming budget shortfall, whether they want to or not.
In the column, I also look at some of the mounting spending pressures.
Washington Research Council 
I share these concerns. From the Legislature’s point of view we are hoping everyone in the world decides all of a sudden that they should behave like adults, not like squabbling children.
Destroying the Euro does not sound like a good idea, nor does the level of budget cuts Congress is considering.
If we make drastic cuts to protect against a downside that hasn’t occurred yet we do the same damage locally we don’t want Congress to do at the national level, and it’s not really clear we could hedge against a double-dip recession at this point anyway.
The feds should take up a plan that makes long-term changes to entitlements (including defense spending) and revenue, but not destroy the economy in the short run. Perhaps that’s the structure of a deal. Wait, didn’t Simpson and Bowles already do this dance…