Without fanfare, jubilation, or speed the House of Representatives finally took action on the fiscal clif. This was after the deadline, but due to the holiday before the slew of tax hikes and mandatory government spending cuts that were mandated by law. What did America get, besides a confirmation of political gridlock enveloping 2013 and likely the first half of the 2nd term of the Obama Administration?
Victory laps are sure to be taken by both sides. Republicans will stand firm on their pledge to reduce government spending, denying the President the power to raise the debt ceilng at will, and ensuring all but those earning over $400,000 will not see a tax increase (with a minor exception). Democrats will rally around the fact that some of the most wealthy Americans will now pay more in taxes, and part of the “death tax” (the tax on estates valued over $5 million) will also rise, while an extension of unemployment benefits will go forward for 1 more year.
What the deal doesn’t do is renew the payroll tax break. Thus, the middle class will feel that pinch. In addition, the deal adds $4 trillion to the national debt over 10 years – essentially evaporating the reductions proposed during the 2012 election campaign by the Obama Administration. Looked at another way, for every $1 in spending cuts there was an increase in taxes of $41, the net result of which is that debt still increases with 2016 targeted around $20 trillion – so long as interest rates remain at .25% (historically improbable).
In addition, the big issues that were the critical questions in the fiscal cliff – the mandatory cuts to defense and Medicaid – are still the Damocles sword over America. The deal extends 2 months of negotiation time before $1.2 trillion in cuts automatically kick in. Which means the same problem still requires an answer, which is now complicated by even more debt and the need to pass yet another debt ceiling limit raise as the nation has already maxed out its spending.
Perhaps the best assessment of the resulting deal is that of Rep Charles Rangel,
No matter how this is spun, and it will be spun in every political manuever possible, there are no winners. Congress failed the public. The House failed to broker a deal, the Senate waivered in taking up the responsibility until beyond the last minute. The President failed in drafting a compromise and leading both sides to a deal that resulted in a benefit to America.
The public loses the most though. our Government has shown yet again that we are a nation led by elected officials that are so locked into partisan beliefs that they cannot act – even in the face of imminent failure. our Government has once again shown that our elected officials maintain a fiscal discipline that only a sieve could be compared to. The security of the deal is as tangible as a whisp of smoke, with an assurance that the next 2 months will be plagued with further inaction, finger pointing, and partisan blockades. Plus an increase in taxes, that while moderate and no more than what existed before 2008, is still a loss during an economy that is anything but prosperous.
This more than anything else is the legacy of the 112th Congress. The 113th Congress is poised to pick up from here and provide even more of the same. The likelihood of a budget being passed is about the same as in 2009 – so low on the totem pole as to be submerged. The odds of yet another last minute deal, that extends government spending at the current pace or greater, is almost as good as the sun rising in the east. The promise of political gridlock may in fact be the only thing that the Obama Administration and Congress will be able to deliver on.
The fiscal cliff has not been averted, but diverted. The debt ceiling has come and gone with no doubt that it will be a central point of contention before the 1st quarter ends. The country remains fiscally mismanaged, and not a single elected official has the ability to compromise and create a consensus on how to even slow the rate of monetary instability.
But lest anyone take this as a somber foretelling, we will note that this may be the positive highlights of the upcoming year. Indeed, with regard to the economy and the national budget, the final actions of the 112th Congress amy be the best thing to happen to the nation for some time to come.