Do Democrats really want to play this game of chicken?

Presidents are usually blamed more than others for other the economy is going. In this case, I think that it is more than fair. But what impact will the big expected tax increases and spending changes have on the economy? There are two effects from the taxes. Higher marginal tax rates on labor next year will actually increase work effort now and decrease it in the future. But the higher taxes on individual owned businesses will reduce their investments now. They will try to get more out of their employees now, but they will not make as much new capital investments as they otherwise would have. My guess is that firms will be less likely hire new workers at this point because that will be viewed as an investment. The changes in government spending may also create chaos in the economy, though I am not sure how much defense contractors, for example, will believe that those cuts will actually occur. From the Washington Post:
Democrats are making increasingly explicit threats about their willingness to let nearly $600 billion worth of tax hikes and spending cuts take effect in January unless Republicans drop their opposition to higher taxes for the nation’s wealthiest households.

Emboldened by signs that GOP resistance to new taxes may be weakening, senior Democrats say they are prepared to weather a fiscal event that could plunge the nation back into recession if the new year arrives without an acceptable compromise.

In a speech Monday, Sen. Patty Murray (Wash.), the Senate’s No. 4 Democrat and the leader of the caucus’s campaign arm, plans to make the clearest case yet for going over what some have called the “fiscal cliff.”

“If we can’t get a good deal, a balanced deal that calls on the wealthy to pay their fair share, then I will absolutely continue this debate into 2013,” Murray plans to say, according to excerpts of the speech provided to The Washington Post. . . .

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