Fiscal Cliff Deal: The Real Reason Why It Happened


We have officially bungee-jumped off the fiscal cliff’s edge. At what should have been beyond the last possible second, Congress cut a deal.

There will undoubtedly be a few questions as to why it took what it did to avoid something no one wanted in the first place, but there’s a method to the madness.

In 2011, the European Debt Crisis was still prominent in the news cycle and a wave of Tea Party Republicans went to Washington with a mandate to block tax increases and initiate spending cuts.

Faced with Tea Partiers willing to block an increase in the debt ceiling — and thereby force a default — President Obama signed the Budget Control Act of 2011 as a compromise; the debt ceiling went up, but Congress gave itself a mandate to tackle the debt.

The subsequent legislation stipulated automatic cuts if Congress wasn’t able to pass an agreement on it’s own.

By being forced into the issue, Congress and the executive were put in a precarious position. Debt reduction in the abstract was unobjectionable, but when it came time to decide where to trim the budget, things became complicated as neither side was willing to sacrifice any of it’s own sacred cows.

The standoff, however, heavily favored the Democrats.

For starters, the cuts weren’t exactly across the board; Social Security and Medicaid were exempt, and reductions to Medicare limited to 2%. Sequestration would, however, cut into the Pentagon’s budget much more to the dismay of Republicans.

Recent polls from Reuters/Ipsos and CNN/ORC also showed that the electorate was ready to lay more blame on Republicans than on Congressional Democrats or the President.

Going into the home stretch, the Democrats were already going to get either a favorable pre-cliff deal or sequestration which would have been more damaging to the Republicans in terms of both politics and policy priorities-and afforded them a stronger hand for any post-cliff deal.

But why were Republicans so stubborn only to give in at the last possible moment?

Many of these more obstinate Republicans hail from districts which Obama lost during the election. While they’re probably safe from Democrats in their districts, they’re not necessarily secure from a more conservative challenger. Taking a bad deal could seriously tarnish conservative credentials.

But as of Tuesday at 12:01am, the Bush tax cuts were considered expired. By passing a deal when they did, House Republicans were technically lowering tax rates for single filers making less than $400,000 and couples making less than $450,000.

Whether it was pure political calculation, a true desire to salvage some part of the Bush tax cuts, or a consideration for longer term party strategy, the reasons are all there; what the Republicans did — and even when they did it — makes sense given the situation in which they found themselves.

While we apparently dodged a bullet, the agreement isn’t all that comprehensive. Settling the mandatory sequestration cuts was simply pushed out for two months, so consider that another flashpoint on the horizon.

We also have to remember this was only deficit reduction, not debt reduction; so it won’t be too long before we bump our heads on the debt ceiling once again, and if this episode was any indication, it won’t be pretty.