Cliff diving

By G.I. | WASHINGTON

THE collapse of the supercommittee has many mourning the last chance at a "grand bargain", a sweeping reform of taxes and spending that puts the deficit on a convincing, downward path. Over at At RealClearPolitics, Alexis Simendinger helpfully reminds us:

In truth, current law has accomplished a “grand bargain” in deficit reduction over the next decade ... Washington's default governance could deliver more than $7 trillion in deficit reduction in the next decade if Congress and the president do nothing but campaign next year.

The problem, of course, is that this grand bargain is perversely structured to do maximum damage for minimum benefit. I've tried to compile the various tax increases and spending cuts scheduled to kick in over the next 14 months, with the help of research from JP Morgan, ISI Group, and the CBO. The results are in the table at the right and they illustrate that America faces two fiscal cliffs in the next 14 months.

The stuff that expires or takes effect in coming months adds up to $359 billion, or 2.4% of GDP. The stuff that expires or takes effect a year later is another $385 billion, or 2.6% of GDP. There's a decent chance the payroll tax cut and extended unemployment insurance benefits, now scheduled to expire at the end of this year, will be extended one more year. But that still leaves 1.6% of tightening baked in for 2012, and an eye-watering 3.4% for 2013. That is a dangerously large serving of fiscal austerity at a time when the Federal Reserve anticipates unemployment will still be over 8% and growth below 3%. And of course, the long-term growth in entitlement spending is largely untouched. As grand bargains go, this one is best left in the remainder bin.