Excuse the tautology, but a state is not a household. It is subject to different economic forces and has different economic needs and goals. It functions on a different scale and has a totally different set of tools at its disposal. Hence, equating a state's finances with a household's finances is fatuous.
That's a rather glib statement. It's true that a state is not a household, but a state is not immune from the laws of economic reality. It has to work with income and debt just like any other financial entity. It certainly has more tools, and more powerful tools at its disposal, and these tools may allow it to postpone the day of financial reckoning, but it cannot be avoided. Sooner or later the household is going to find that there are no more credit cards to charge; and sooner or later the US is going to find that there are no more countries or banks to lend it money.
Because of the different (not expanded, but different) economic tool set that a state has, compared to a household, the state exists in an entirely different economic reality. It
can continuously borrow money, because it borrows money from entities that print money. A household with a true deficit problem is one that has total debt increasing month-on-month, without an end in the very near, very visible future, because they are going to hit a borrowing limit, imposed upon it from the outside, based on how able they are to repay their total debt. A state with a true deficit problem is one that has begun to borrow at a pace that is beyond that which other states are willing to produce more currency to be loaned. One is based on a risk assessment made by a bank, while the other is based on an assessment of inflation, made by another government. A creditor bank wants all of its money back, plus interest. A creditor government wants incoming interest payments to be greater than the devaluation of their currency supply.
As long as the United States does not borrow too quickly (and there is no sign that we are anywhere near that point), you'll find that it is quite capable of borrowing forever. With two brief exceptions in the 1920's and late 1990's, the United States has been borrowing money for a century. A household doing that would be rendered unable to pay for even its basic needs, and would likely be jailed by its creditors. A state doing that can ascend to and maintain its position as the most prosperous nation on Earth. States and households are simply different kinds of economic actors, dealing with different economic realities, and it is, again, fatuous to equate the two.
We all use heuristic devices, like analogies, to simplify complex problems, in an effort to
better more quickly find a solution. The problem is that you can take that too far, as you do when you equate a state's budget to a household budget. It's because you're utilizing this oversimplified heuristic model that you don't see why too much austerity might present a larger problem than ongoing deficits. To better understand the reality of the situation, you need to revise or discard (in this case, discard) that model, so that you are again free to examine the complexities of the situation. When you're willing to do that, I invite you to proceed onto the spoiler block below, so that we can continue the discussion about how to deal with deficits in a down economy. If you're not willing to do that, then don't bother proceeding, because you will continue talking about a household, and I will continue talking about a state, and at no point will those two dueling monologues have a useful intersection.
More even to the point, the problem of the fiscal cliff was precisely that it THREATENED to SOLVE the deficit too fast. Get it now? The problem isn't the deficit, it's the austerity of too much tax hikes that could damage the economy that they have just avoided.
The budget problem cannot be solved with tax hikes.
Setting aside the fact that the fiscal cliff wouldn't have completely solved the deficit, the notion that the deficit shouldn't be solved too fast is rather strange. If the solution is going to be painful whether it happens in the short term or the long term, it's better to do it now when the consequences will be less severe and more predictable.
You talk about Europe's failure of austerity, as though they've attempted to solely raise taxes, which is simply not the case. Greece has attempted to do almost exactly what the United States would have done, had the budget sequester gone into place. They slashed spending across the board in an effort to reduce their deficit, but in the process destroyed so many jobs in the Greek economy that tax income plummetted, and their deficit worsened.
It's also worth pointing out, since you seem to be on an anti-tax kick, that over the last half-century, the United States economy has boomed in the wake of increases in the income tax rate and faltered, following decreases in the income tax rate. I'll be the first to say that correlation does not imply causation, and my aim with that statement is neither to imply that tax cuts put a halt on economic growth, nor that tax increases automatically improve the economy. It does, however, indicate that modest increases in the income tax rate are not a threat to the economy.
With respect to the United States' deficit, remember that two largest spending programs of the Bush administration were not the wars or the bailouts, but the 2001 and 2003 tax cuts, and the effect of those cuts has been steadily growing over time. Those (and their extension in 2011) have been, by an order of magnitude over everything but the wars (the tax cuts were only $300 billion more expensive than the wars), the single largest item between our current position and restoring the Clinton-era budget surplus. (The CBO periodically does estimates of legislative impacts on a January, 2001 baseline, such as
this recent estimate. The war numbers came from the
Congressional Research Service.)
The fact of the matter is, though, that you cannot go from a huge deficit to a balanced budget in one fell-swoop, even in the best of economic times, because the measures you take, whether onerous spending cuts or onerous tax hikes or an onerous combination of both, will destroy the state's job market and economy, thereby worsening the problem. If you instead gradually implement deficit-reduction measures, as the state's economy improves (possibly even tempoarily curtailing those measures, if they go too far at certain points along the way), you can actually solve the problem. Remember that the Clinton administration did not balance the budget overnight. Clinton was into his second term and had been building on a foundation constructed, at least in part, by the elder Bush's administration, when deficit finally turned into surplus.
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