If the budget gods had their way, the 112th Congress would mercifully conclude its deliberations today on a major budget deal to blunt the worst of the fiscal cliff and then fade into history.
We’re not so lucky. After weeks of futile negotiations, Vice President Joe Biden and Senate Minority Leader Mitch McConnell scrambled last night to finalize a deal that prevents most Americans from getting clobbered by substantial tax increases and enduring the pain of across-the-board cuts in government programs.
Few on Capitol Hill smiled upon seeing the terms of the agreement. But the Democratic Senate gritted its teeth and passed the measure 89 to 8 almost two hours into the new year, a largely bipartisan vote with the most prominent Republican objectors being Sen. Marco Rubio of Florida--a possible presidential contender in 2016--and Tea Party favorite Sen. Rand Paul of Kentucky. The contentious GOP-controlled House is scheduled to take it up today, guaranteeing only to consider the measure just two days before the new 113th Congress gets sworn in.
The White House acceded to tax hikes starting at $450,000 -- an effort to appease anti-tax Republicans by backing down from the $250,000 level that President Obama had long called for. The deal would delay the $109 billion in sequestered budget cuts for two months, essentially moving the drop off the cliff that was due to start today. Republicans wanted the cuts in defense and domestic programs to take effect by March while the Democrats favored waiting a year or more before they begin to bite into the economy.
But the dust will not potentially settle on the budget for months. Should the deal pass the House, fights will likely continue over raising the $16.4 trillion debt ceiling, entitlement spending, the trajectory of the deficit and even taxes. When Obama addressed the nation on Monday from the White House, his tone veered toward the combative. He promised Republicans that additional tax increases must be part of any plan to shrink future budget deficits—as negotiations will likely continue over the borrowing limit.
“Now, if Republicans think that I will finish the job of deficit reduction through spending cuts alone,” Obama said, “then they’ve another thing coming. That’s not how it’s going to work. We’ve got to do this in a balanced and responsible way. And if we’re serious about deficit reduction and debt reduction, then it’s going to have to be a matter of shared sacrifice. At least as long as I’m president. And I’m going to be president for the next four years, I hope.”
With that in mind, here are five critical lessons from the last-second bargain to avoid the fiscal cliff:
GOP Has The Debt Ceiling– The government officially reached its borrowing limit yesterday, forcing the Treasury Department to revert to “extraordinary” steps to keep the government operating for about two months.
In other words, lawmakers might as well be glued to their seats at the bargaining table. Republicans see a clear advantage on this unsettled element of the fiscal cliff. Obama needs their blessing on an increase to the debt ceiling, or else the country defaults.
“The big battle is yet to come and it’s over the debt ceiling,” Sen. Johnny Isakson, R-Ga., said in a Monday floor speech. “That’s the one where we have to find a way to make a deal. And the president is not going to make a deal by poking us in the eye.”
In return for lifting the government’s borrowing capacity, GOP lawmakers plan to extract massive spending cuts and entitlement reforms—something they could not achieve when taxes were still part of the fiscal cliff.
By agreeing to extend the George W. Bush-era tax rates for almost 99 percent of the country, Obama no longer has that bargaining chip. When Obama last confronted similar circumstances in the summer of 2011, the federal government almost defaulted and was downgraded—while the White House backed down from its demands.
Steve Bell, a former Republican Senate aide now at the Bipartisan Policy Center, interpreted Obama’s remarks as a declaration that he will oppose the structural changes needed to programs such as Medicare and Medicaid that have surging expenditures.
“It is my judgment the debt ceiling is a much more serious matter than the fiscal cliff,” Bell told The Fiscal Times. “They’re in different galaxies. We could have gone off the fiscal cliff and with the economy the way it is we might have had a slight recession. You know what would happen if we went a couple of days without paying the interest on our public debt.”