After a ‘fiscal cliff’ deal, what next?

The “fiscal cliff” was designed by Washington for Washington — it was intended to set up a scenario so severe that the president and Congress would, at last, have to take on the nation’s major tax and spending problems. Instead, lawmakers again found a way to sidestep many of the prickliest issues and in the process set up other, potentially more severe, showdowns in the new year.

The Senate approved a deal with the White House early Tuesday morning that would spare the middle class from an income tax increase, extending tax breaks first enacted under President George W. Bush for individuals making less than $400,000 and couples making less than $450,000.

It would also delay for two months the deep automatic spending cuts that were set to hit the military and domestic programs Wednesday.

Assuming the deal is approved by the House, it will nevertheless give way to a nearly continuous series of fights that will consume the first part of the year, even as President Obama might hope to shift Congress’s attention to immigration reform and gun control.

“It’s become less like a fiscal cliffhanger and more like a journey over the fiscal mountains,” said Rep. Jeff Fortenberry (R-Neb.).

The Post’s Felicia Sonmez explains how going over the “fiscal cliff” will affect you and your wallet. (The Washington Post)

The next big deadline is likely to come around the end of February, when the Treasury Department will exhaust the measures now in place to extend the nation’s $16.4 trillion debt ceiling. At that point, the government will not be able to pay its bills unless Congress votes to raise the nation’s legal borrowing limit.

Republicans hope to use that moment to force Obama and congressional Democrats to agree to major spending cuts in return for the increase — in what could be a sequel to the contentious face-off over the debt limit in the summer of 2011.

Provided Monday’s deal is approved, in early March would come another deadline: the $110 billion cut in spending, half from the Pentagon, delayed as part of this deal.

A month or so later — on March 27 — a short-term measure that funds government agencies will lapse. Without a renewal, the government will shut down, setting up another possible showdown.

“Round two’s coming,” said Sen. Lindsey O. Graham (R-S.C.). “And we’re going to have one hell of a contest about the direction and the vision of this country.”

Many Republicans believe they’ll have more leverage then than they do now because the debate over tax rates on the wealthy will be settled.

In their view, Obama has been wielding a powerful rhetorical weapon: that Congressional Republicans were blocking a deficit-reduction deal and preventing tax cuts for the middle class because they refused to allow taxes to rise for the wealthy. But the deal reached late Monday, which allows rates to rise for individuals making more than $400,000 a year and couples earning more than $450,000, would remove the issue from discussion.

Republicans figure that will tilt the debate toward spending cuts.

Graham said he anticipates forcing Democrats to give in on a long list of the GOP’s top spending priorities in the new year: raising the eligibility age for Medicare, increasing premiums for its wealthier beneficiaries, and trimming Social Security benefits by using a new method to calculate inflation.

“I think if we insist on changes like that, we’ll get them,” he said.

That is, if Democrats even agree to bargain. Obama has insisted he will not get drawn into another negotiation over the debt ceiling like the one that resulted in the nation’s first bond downgrade and damaged consumer confidence in 2011. That fight also left him politically bruised.

“I want to send a very clear message to people here. We are not going to play that game next year,” Obama told business leaders last month.

Obama also made clear in a White House appearance Monday that he thinks all future deals should raise additional tax money from the wealthy, as well as cut spending.

“We’ve got to do this in a balanced and responsible way,” he said. “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.”

This outcome was neither side’s first choice.

Obama wanted to take care of raising the debt ceiling as part of the fiscal-cliff solution.

“It should be part of the deal,” White House press secretary Jay Carney said on Dec 4. “It should be done, and it should be done without drama.”

But it wasn’t.

Similarly, Republicans wanted to take a significant whack at the entitlement programs whose growth will contribute most significantly to the nation’s debt.

“In order to garner Republican support for new revenues, the president must be willing to reduce spending and shore up the entitlement programs that are the primary drivers of our debt,” House Speaker John A. Boehner (R-Ohio) said the day after the November election.

That didn’t happen either.

And there’s no guarantee a resolution becomes any easier in 2013.

On Thursday, 12 new senators and 67 new House members take office, many fresh off campaigns in which they made promises to their partisan supporters not to yield on fiscal issues.

“As well-intentioned as the new folks are, they don’t even know where the bathrooms are,” said Rep. Steve LaTourette (R-Ohio), who will retire Thursday. “It’s patently unfair to dump this in their laps. And it’s unrealistic to expect them to solve in 90 days what we haven’t been able to solve in two years.”

Obama resigned himself Monday to the reality that a “grand bargain” with Republicans would not happen all at once.

“It may be we can do it in stages,” he said Monday of the major deficit-reduction plan he had once hoped to reach with Republicans by the end of the year. “We’re going to solve this problem instead in several steps.”

Rosalind Helderman is a political enterprise and investigations reporter for the Washington Post.
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