The standoff in Washington on tax cuts and the budget sequester is a bit like a Road Runner cartoon: Road Runner racing toward a cliff, Wile E. Coyote hot on his heels, Road Runner coming to a screeching halt at the last moment and Wile E. Coyote plunging off the precipice.
But the joke will be on taxpayers -- and Congress is no nimble Road Runner -- when the Bush-era tax cuts expire at the end of the year and massive budget cuts, most aimed at defense, kick in.
How did we get to the so-called fiscal cliff?
Blame it on an attitude shift that began in the late 1960s and early 1970s when consumers started taking advantage of easier credit with the advent of the bank card and started turning a blind eye to government spending that ballooned with the Great Society.
Congress has little more than four months to act but with elections looming it's not likely anything will get done until mid-November -- if then.
President Barack Obama has been urging a balanced approach: raise taxes on those making more than $250,000 and cut spending; Republicans just want to cut spending and entirely eliminate Obama's signature healthcare reform program. In the months since the supercommittee failed to come up with a tax reform plan and the sequester was enacted, neither side has budged.
"Well, I certainly think the president believes that if Republican leaders were to tell him that they were ready to support the basic principle that we need to address our fiscal challenges in a balanced way, that we can move forward with a plan for deficit reduction that doesn't just cut spending, doesn't just reform entitlements, but also asks everyone to pay their fair share -- then, absolutely, we could get this done very quickly, as I've said repeatedly and as the President has said repeatedly," White House spokesman Jay Carney said during a news briefing last week.
"Unfortunately, what I have seen ... is that they're calling for action to prevent cuts that the president does not support -- that no one supports -- to take action on that not by advancing a balanced deficit reduction plan. And the reason they won't do that, or haven't yet, is because they would rather see those defense cuts take place than ask millionaires and billionaires to pay a little bit more. And that is simply indefensible as a proposition."
Carney also accused Republicans of being willing "to play chicken with the global and American economies."
Deputy White House spokesman Josh Earnest earlier noted the sequester was supposed to force Congress to act.
"What seems to me and other members of the administration to be the principal stumbling block is the commitment, the die-hard commitment on behalf of congressional Republicans, [not] to even consider asking millionaires and billionaires to pay a little bit more to deal with our deficit challenges," he said.
Economists have suggested all this uncertainty about taxes and spending has put a damper on economic recovery, which has been anemic at best. The Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association said in a report to the treasury secretary last week though growth is slow, there are no indications of a downturn -- yet.
"The weekly and monthly economic reports point to slow growth, but nothing worse," the report said.
Government spending is down, off 1.4 percent on an annualized basis in the second quarter and state and local government spending was down even more, 2.1 percent.
"Fiscal policy remains a source of uncertainty in the economic outlook, as the 'fiscal cliff' comes closer into view. Although concerns surrounding the cliff have increased, action to address this impending fiscal tightening are unlikely to occur until after the November election," the report said.
University of Maryland economist Peter Morici said the current brinksmanship risks a "second Great Depression."
"Without a compromise by January, $400 billion in mandatory spending cuts and more than $100 billion in tax increases immediately go into effect. With GDP only growing $300 billion annually, such a shock would thrust the economy into prolonged contraction," Morici said in an opinion piece last week.
Morici said even if Obama wins re-election, he likely will still have to deal with a Republican House. And even if he wins tax increases on the upper 2 percent of taxpayers, he likely will not be able to finance new commitments like increasing the U.S. naval presence in the Persian Gulf and Asia to offset Iran and China.
"He can't finance those without giving Republicans some of the entitlement reforms they want but can't get now," Morici said, adding no deal would mean mass layoffs come spring.
If presumed GOP presidential nominee Mitt Romney wins, by the time he takes office, it may be too late to stave off disaster, Morici said.
"The Great Recession was caused by manifest structural problems in the economy: a wide trade gap with China and on oil, banks that had forgotten how to earn profits through sound lending, failed financial regulations and skyrocketing healthcare costs," Morici said, adding current policies have exacerbated the problems.
"If the economy goes down again, the negative feedback cycle of fewer jobs, less spending, more layoffs, and so forth will be much more severe than in 2008," he said.