Get Ready: A New Fiscal Cliff Will Bite Everyone in the Ass in 2 Months
The last thing to stumble through the closing gate in 2012 was the thing everyone wanted and dreaded: a fiscal cliff deal. Is the fiscal drama over? Who won?
Conventional wisdom says this was a major political triumph for Democrats, having negotiated a resolution entirely dependent upon revenue, not cuts. Still, both sides are scrambling to make themselves look good, despite the shared sour taste in both liberals’ and conservatives’ mouths.
Even though individuals making over $400,000 just got a hefty tax increase, Americans for Tax Reform chief Grover Norquist is touting the recently approved fiscal cliff deal as a tax cut which House GOP members could approve without breaking their anti-tax pledges. Listening to him, you’d think Republicans were the ones who won this round.
“It’s technically not a violation of the pledge, but I understand why a lot of Republicans had said, look, even though what’s happening is the tax cuts disappear and we’re restoring them for most people — so we’re not raising taxes,” Norquist told CNN on Tuesday. “We’re actually cutting taxes.”
“They need to be able to say with a straight face ... that they're fighting to oppose any and all tax increases, period,” he continued.
Norquist has a point. With the glaring exception of the increase on earners over $400,000, lower tax rates for everyone have been extended in perpetuity at a cost of somewhere along the line of $4 trillion over the next decade.
But other Republicans have already admitted this was a major defeat for the GOP. Earlier this week, Senator Lindsey Graham (R-S.C.) used his Fox News Sunday slot to say, “What have we accomplished? Political victory for the president. Hats off to the president. He stood his ground. He’s going to get tax rate increases … on upper-income Americans.”
Paul Krugman unsurprisingly does not buy it either, saying in a blog post that “on the principle of the thing, you could say that Democrats held their ground on the essentials – no cuts in benefits – while Republicans have just voted for a tax increase for the first time in decades.”
While the deal might be a political victory for the president and Democrats, what does it do in practice? Not much. The combined savings comes to around $660 billion; far from close to plugging the deficit. Republicans get a major embarrassment; Democrats sacrifice any ability to negotiate future revenue increases. Because the Bush tax cuts are extended permanently, “any effort to deal with the very large debt and deficit that we have going down the road here ... revenue is pretty much off the table and we didn’t get much,” Rep. Adam Smith (D-Wash) told Fox & Friends on Wednesday. Since this deal did not resolve either of the major parties’ complaints, we will have to finalize the budget in “stages,” as the president admitted Monday.
The outgoing Congress had a chance to avert a disaster, but took the last-minute easy out, kicking the can down the alley yet again. This will come back to bite average Americans in the ass with gusto when in two months we run the risk of default unless Congress raises the debt ceiling. Republicans have already made very clear their intention to set up another protracted and bitter battle over that debt limit; Senator Bob Corker (R-Tenn.) announced on Tuesday, before the deal was even finalized, that “it’s time to move on to the spending reductions that will be part of the debt ceiling package.”
The president countered, saying “I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up … the consequences for the entire global economy would be catastrophic, far worse than the impact of the fiscal cliff.”
So have Democrats won? Far from it, thanks to the debt ceiling.
No matter what Norquist says, the GOP has taken a major hit and desperately needs a political victory. Accepting this deal without an agreement on the debt ceiling gives them an opportunity to raise another ruckus, which they will doubtless seize. The president will be faced with incessant calls to enact major cuts in entitlement programs, and while he held firm this round, without any mechanisms to raise revenue he may well capitulate.
But not without a battle. Prepare for a bumpy ride.