Jumping Off the Fiscal Cliff Will Have Unintended Consequences
Posted at 12:15 p.m. on Dec. 12, 2012
Peter Orszag looks at just one example of an “unanticipated harm that could come from the U.S. going over the fiscal cliff.”
“Build America Bonds…provide a direct federal subsidy, an explicit tax credit that isn’t dependent on marginal tax rates. As a result, it is delivered fully to state and local governments… state and local governments used them to finance more than $180 billion in capital infrastructure projects.”
“If the sequester — the automatic budget cuts Congress agreed to as part of the 2011 deal to raise the debt ceiling — takes effect, holders of Build America Bonds will see a reduction in the effective interest they receive because the bonds’ credit is included in the sequester… If the federal government were to miss or unilaterally reduce interest payments, investors would no longer want to buy the affected asset.”
