We're Headed For A Fiscal Cliff. Should We Jump?

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Like most central bank chiefs, Ben Bernanke tends toward understatement. But when he testified before Congress earlier this year, Bernanke went big.

"On January 1, 2013," he said, "there's going to be a MASSIVE FISCAL CLIFF of large spending cuts and tax increases."

Full disclosure: The all-caps are ours. Still, "massive fiscal cliff" does have a pretty strong ring to it.

One of the biggest parts of the fiscal cliff is the expiration of the tax cuts passed by President Bush and extended by President Obama. If Congress doesn't act before the end of the year, taxes will go up for most Americans.

Simon Johnson, our guest on today's show, thinks that would be a good thing.

"Our critics say we are proposing a large, middle-class tax increase," Johnson says. "To which the answer is, yes. We are."

He argues that a tax hike is necessary to pay for Social Security and especially Medicare, which is projected to become significantly more expensive in the coming decade.

If you want to keep social insurance in place in a sustainable fashion, you need revenue. ... In the United States today, your main chance for getting revenue is don't extend the bush era tax cuts. Have an increase in taxes for people at the higher end, for sure, but also throughout the middle class.

Johnson is an MIT economist and co-author of the new book White House Burning.

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