Congress Avoids Fiscal Cliff, But At What Cost To Ordinary Americans?

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Congress was able to cobble together a temporary patch for the self-imposed fiscal cliff in a series of late-night votes featuring intra-party bickering and a widespread sense that the final deal was imperfect and nothing more than a painful necessity.

Well over a year since the artificial deadline for the “cliff” was concocted by the White House and lawmakers as a means of legislating austerity on working Americans, Congress ended a post-Christmas deluge of partisan sniping and a wholesale revolt within the Republican Party by managing to get both the House and Senate to agree on a compromise. It’s a deal destined to be short-lived, however: language in the bill guarantees another fiscal fight at the end of next month.

Passing by a wide margin in the Senate but with mainly Democratic support in the House, the congressional bargain consists of mainly tax cuts and patchwork fixes to keep the government running and eliminate the potential for major financial hits on a majority of  Americans. Almost 90 percent of the Bush tax cuts that progressives wanted to end and President Obama promised to eradicate were preserved in perpetuity in this final deal.

While staving off tax hikes for most of the country, the fiscal pact does little else of substance on the major issues facing lawmakers. Neither side is claiming much of a victory at the conclusion of an episode sure to do even greater harm to the public perception of Congress that is already at record lows.

Worse, the last-minute nature of the fiscal cliff deal means that a repeat of the Capitol Hill antics that marked the negotiations is almost certain to occur as three additional deadlines — all meant to have been addressed before the “cliff – loom for Congress and President Obama, starting with the Treasury hitting its limit on accruing new debt as early as late February.

Congress didn’t completely fall off the “fiscal cliff,” but they’re still hanging onto the edge. 

By waiting until the last minute to scrape together a limited bill (which extends the Bush-era tax rates for most Americans and extends long-term unemployment insurance, among other things), Congress sidelined some major fiscal issues they initially sought to resolve before the new year.

Leaders in Washington deferred for two months the $1.2 trillion in across-the-board spending cuts (known as “sequestration”) set to hit the Pentagon and domestic programs this week. Additionally, the bill passed this week failed to raise the debt ceiling, even though the Treasury technically hit the $16.4 trillion limit Monday. Both of these issues will come to a head just as Congress is expected to vote on a new federal budget. The convergence of these issues practically guarantees that within a matter of weeks, Washington will once again find itself embroiled in another fiscal crisis 

Conservatives, the White House and much of the press are treating the outcome of the fiscal showdown as a victory for President Obama/Democrats and a major loss for the GOP. But this conventional wisdom lacks a clearer picture of what the president’s “grand bargain” means for Americans and what it means for future negotiations when the stakes are far greater for the most vulnerable people in the country.

The final package represents a nearly 100 percent increase in the income level that will receive permanent tax cuts, with the president abandoning his campaign pledge of ending the Bush tax cuts for those making more than $250,000 and backing a higher cut-off of nearly $500,000.

The embrace of permanent tax cuts for a large chunk of the top two percent of income earners in America contributes to the eye-popping price tag of just under $4 billion that the Congressional Budget Office affixed to the “cliff ” deal, based solely on the hit in government revenue caused by the tax cut extension.

While the deal passed with overwhelming support from Democrats in both the House and Senate, a few progressive stalwarts voted against the plan and voiced their principled opposition to a bill that reneges on most of the promises made by Obama and Democrats in an election they handily won just two months ago.

Progressives in Congress lambasted the measure as another giveaway to the rich while endorsing austerity for the working masses, pointing out that the president would be breaking his highly publicized campaign promise on ending tax cuts for the rich if he signs this bill.

A few House stalwarts refused to go along with the 257-167 vote on New Year’s Day. Among the objectors were Congressman Jim McDermott, D-Washington, and Congressman Peter DeFazio, an Oregon Democrat who has a history of breaking with his party’s leadership when he feels it has compromised on tax fairness, economic justice and infrastructure investment. Congresswoman Rosa DeLauro, a Connecticut Democrat who chaired the party’s platform drafting committee in 2004, said she voted “no” because the bill did not do enough to benefit working families. “I was hopeful that we would be voting on legislation that prioritized working families and the middle class over the wealthiest Americans in taking a balanced approach to the challenges we face as a nation,” she explained. “However, the bill before the House of Representatives tonight is not that.”

In the Senate, where the vote for the measure was a lopsided 89-8, the one progressive “no” vote was that of Iowa Senator Tom Harkin, who echoed the vow of grassroots groups such as the Progressive Change Campaign Committee, which argued: “The president ran on and won on $250,000 twice. Voters across the country overwhelmingly agree with the $250,000 threshold. And in real human costs, the billions lost by raising the threshold to $400,000 will come out of the pockets of grandparents and working families across the nation.”

Progressives point out that the “cliff” deal approved by Congress is devoid of any “balanced” approach that enforces sa fair sense of responsibility in imposing fiscal discipline on the government. A sizable segment of the richest individuals and families in the country received permanent protection from any tax hikes at any time in the future to pay for any manner of substantive debt and deficit reduction.

Meanwhile, the poorest families in the country saw limits placed on their tax relief while being hit with austerity measures in the form of a sunset of the popular payroll tax cut, a measure that benefited mostly blue collar workers to the tune of hundreds of extra dollars in their checkbooks each year.

Robert Reich grades the ultimate fiscal cliff package as a “lousy” deal for working Americans and their families, coddling the rich while setting the stage for sweeping austerity within a few months.

 The deal emerging from the Senate is a lousy one. Let me count the ways:

1. Republicans haven’t conceded anything on the debt ceiling, so over the next two months – as the Treasury runs out of tricks to avoid a default – Republicans are likely to do exactly what they did before, which is to hold their votes on raising the ceiling hostage to major cuts in programs for the poor and in Medicare and Social Security.

2. The deal makes tax cuts for the rich permanent (extending the Bush tax cuts for incomes up to $400,000 if filing singly and $450,000 if jointly) while extending refundable tax credits for the poor (child tax credit, enlarged EITC, and tuition tax credit) for only five years. There’s absolutely no justification for this asymmetry.

3. It doesn’t get nearly enough revenue from the wealthiest 2 percent — only $600 billion over the next decade, which is half of what the President called for, and a small fraction of the White House’s goal of more than $4 trillion in deficit reduction. That means more of the burden of tax hikes and spending cuts in future years will fall on the middle class and the poor.

4. It continues to exempt the first $5 million of inherited wealth from the estate tax (the exemption used to be $1 million). This is a huge gift to the heirs of the wealthy, perpetuating family dynasties of the idle rich.

Jonathan Chait espouses a similar tone in reviewing Obama’s handling of the fiscal cliff.  While acknowledging that pleas from the White House that they will negotiate tougher compromises in the future may be correct, the more plausible and likely scenario is one where the major concessions granted by the president in the cliff bargain will be dwarfed by the sacrifices he makes on social programs and tax protection for the rich in the three major congressional showdown yet to come before the end of March.

Even if the House passes the bargain, we’ll soon find ourselves facing the other major economy-threatening event: The next vote, sometime in February or March, to raise the debt ceiling. Here, too, Obama and the Republicans disagree about how to proceed. Obama insists he won’t let Republicans use the vote to extort policy concessions (which they did in 2011, something that had never happened before.) Republicans firmly believe they can and will.

So what we have is two more showdowns in which the parties disagree not just on the outcome but even on the parameters of an outcome. Obama thinks the debt ceiling needs to be raised, full stop, without becoming a bargaining chip in a fight that threatens the stability of the global economy. Republicans want to use that chip. Then there’s the sequester, which Obama thinks should be replaced with spending cuts and tax revenue, and Republicans think should be replaced with spending cuts and more spending cuts.