Fiscal Cliffs Notes - NYTimes.com Word has it that senators from both parties have begun discussing ways to avert the "fiscal cliff" - the tax increases and spending cuts slated to take effect starting in January and totaling some $700 billion next year alone. More power to them. If Congress does nothing to soften the blow of automatically higher taxes and lower spending, the changes would further devastate the economy and provoke a recession in 2013, according to the Congressional Budget Office and private analyses. On the other hand, if lawmakers decided to undo or delay all of the scheduled changes - in effect, extending today's policies indefinitely - there would be no progress toward long-term deficit reduction, and that would raise the risk of fiscal crisis in the future. The challenge then is for Congress to foster economic recovery and at the same time put the budget on a sustainable path. As policy goes, that is not so hard to do, in part, because lawmakers have a lot of variables to work with. Among the major upcoming changes, the Bush tax cuts are set to expire at year's end, as are the payroll tax cut and federal unemployment benefits that have been on the books for the past two years. At the same time, deep across-the-board budget cuts from last year's debt-ceiling deal will begin to take effect in 2013, while several routine provisions will lapse unless Congress renews them, including measures to protect middle-class taxpayers from the alternative minimum tax and to ensure that doctors receive adequate reimbursements from Medicare. Politically, however, the challenge of promoting growth while taming the budget has repeatedly proved impossible, in large part because it inevitably involves tax increases that Republicans have sworn to oppose. Will this time be different? Here are the signs to watch for: NO PANIC Despite the vivid imagery of the fiscal cliff, the economy will not immediately plunge into recession if Congress does not reach a budget agreement before the new year. That's because the recessionary impact of higher taxes and lower spending builds over time. Since election year politics make a sensible budget agreement all but impossible anytime soon, lawmakers - and President Obama and Mitt Romney - would ideally use this time to set out their solutions and ideas, without fear-mongering, and then actually enact a plan in the first few weeks of 2013. FIRST THINGS FIRST An analysis of the fiscal cliff by Moody's Analytics shows that the automatic tax and spending changes - if allowed to take effect for the entire year - would slow economic growth by 3.6 percentage points in 2013, setting off a recession. The ultimate severity and duration of the downturn are hard to predict, though given the economy's fragile condition, the odds are that the contraction would be hard to reverse once it began. That economic hit could be held to 1.4 percentage points with a few straightforward changes. First, let the Bush-era tax cuts expire for taxpayers making more than $250,000, while extending them for everyone below that level - as President Obama has proposed. That would raise revenue without harming the recovery, because tax increases on high-income Americans do not cut into consumer spending nearly as much as middle-class taxes. Next, reduce the spending cuts that are due to take place in 2013 from roughly $100 billion to $50 billion. Last, keep in place provisions to shield most taxpayers from the alternative minimum tax and to provide timely doctor payments under Medicare. If policy makers cannot make even that basic deal, along with enough public spending to prevent a contraction, it would be folly to believe that they can ever reach a comprehensive budget agreement. TAX TALK Lawmakers always say they are in favor of tax reform. What's needed, however, are tax increases to bring revenues and spending into line, as well as a commitment that the burden of long-term deficit reduction will be divided between tax increases and spending cuts. Democrats and Republicans can disagree on which taxes to raise and how much, but until Republicans retire their no-new-taxes-ever stance, real progress is impossible. There is hope. The Times's Jonathan Weisman reported recently on the comments of a senior Republican, speaking on condition of anonymity because he did not want to be seen as violating his party's orthodoxy, who said that the no-new-taxes pledge "becomes irrelevant on Dec. 31," when the provisions of the fiscal cliff kick in. ENTITLEMENT REFORM Controlling the rising costs of Medicare and Medicaid and ensuring the long-term viability of Social Security are essential to a healthy budget. Equally essential is for lawmakers to grasp that not all so-called entitlement spending is the same. Medicare and Medicaid do indeed present potentially explosive and crippling budget problems because of the aging population and the relentless rise in health care costs. Social Security costs, in contrast, are driven solely by the aging population. So its cost curve flattens out over time as the baby boom generation dies off. Clearly then, a blunt, one-size-fits-all approach to entitlement reform would do more harm than good, both to the programs and to the millions of Americans who rely on them. Preserving the recovery and putting the budget on a sustainable long-term path. Those are the goals, in that order. As the presidential campaign plays out, and the end of the year draws closer, the American public will find out whether its political leaders are up the dual task before them.