Beware dangerous cliff

By Economist.com

The structure of America's fiscal cliff

AMERICA'S economy seems to have slowed sharply in the current quarter as businesses postpone investment while waiting to see if politicians can avoid sending the country over the "fiscal cliff". That's the combination of tax increases and spending reductions scheduled for the year end. Economists at Credit Suisse have put together a chart of the cliff's components, their size and the likelihood that they will in fact take effect. The total hit is about 5% of GDP. Barack Obama and Congress are most intent on avoiding the expiry of George Bush's tax cuts on the middle class, and the automatic spending cuts (called a "sequester"). Those equal about 2% of GDP. But the parts that are almost certain to occur—expiry of the payroll-tax cut, imposition of discretionary spending caps—still equal a hefty 1.9% of GDP, quite a lot for a still weak economy to support.