An Emerging Consensus to Go Over the Fiscal Cliff?

In last weekend’s commentary for the investment newsletter, I put the odds of going over the “fiscal cliff” at about one-in-five, meaning that I figured there is about an 80 percent chance that, somehow, a deal will get done in Washington to avoid most of the tax hikes and spending cuts slated to go into effect on January 1st.

It’s only been a few days, but I’m already rethinking that view in light of all the recent news coverage and, at this juncture, I’d say we’re definitely moving closer to 50-50.

There have been a few elected officials who have said that going over the cliff wouldn’t be so bad and, now, an unscientific poll at the LA Times indicates a surprisingly large number of respondents share that view.

Of course, most of the people responding are Californians and, as far as I can tell, Democrats get the better end of the deal if we go over the cliff, so, this result should be taken with a grain of salt.

The accompanying commentary recounts some of the history of the Bush-era tax cuts that are at the center of the current debate. Recall that the first round of these cuts very early in the decade was aimed at giving the American people back some of their tax money and, then, when the internet boom turned to bust, the justification quickly turned to the tax cuts being a much needed stimulus.

Of course, former Federal Reserve Chairman Alan Greenspan played a key role in these tax cuts as he, effectively, gave his blessing. Since his reputation was quite a bit better then than it is today, that’s all it took for a lot of people to think this big a tax cut for years to come might be a good idea.