On Tuesday, the House of Representatives, by a 257-167 vote, sent the latest “fiscal cliff” deal to President Obama for his signature. After days of negotiation, Washington decided to basically defer action on many of the big issues until the coming battle over the debt ceiling. As leaders pause to breathe before that fight, here are five truths from this round:
• Deficit hawks’ warnings were once again wildly overblown. In the weeks and months leading up to the so-called fiscal cliff, many of the same people who have been warning for years about the dangers of our national debt argued that a credible deal had to be in place by the new year or the markets would take a dive. No such fall occurred. In the meantime, the Treasury is still getting historically low interest rates on its bonds, a clear sign that the markets remain confident that America is not in danger of default. (And no, it’s not because the Federal Reserve is buying up all the debt.) If anything, the markets are worried about economic growth, not the national debt. One would hope that these empirical setbacks will make people more skeptical about deficit hawks’ future warnings, especially when the economic recovery should be Washington’s top priority.
• It’s a bad deal for conservatives. “Republican Horror New Year” blared the Drudge Report. The deal was “a complete rout,” said The Post’s Charles Krauthammer. In some ways they’re right: The ratio of revenue to spending cuts in this deal is 41-to-1, just a year after would-be party nominees assured Republican voters they would never support a deal that had $10 in cuts to every $1 in revenue. After worries on the left that the president would agree to trimming Social Security and/or Medicare, no such cuts appeared. And a significant portion of Republicans, including 40 senators, House Speaker John Boehner and former vice-presidential nominee Rep. Paul Ryan, voted to raise taxes for the first time in 20 years. (Or, if you accept Grover Norquist’s argument that technically, because rates went up at 12:01 am, the bill was technically a tax cut, then the Bush tax cuts were replaced with the Obama tax cuts.)
• It’s not a good deal for liberals. While there are some notable successes for the president, his supporters are also right to be angry with what he gave up. Key stimulus measures are missing; most notably, there is no payroll tax cut extension, nor any replacement for it, which will cost the American economy around 500,000 jobs this year. On the revenue side, the president has relatively little to show for a negotiation where he held most of the cards. After promising not to go above the $250,000 threshold for higher taxes, the president let that rise to $450,000. Worse, in another costly concession Republicans demanded, the estate tax will go up only 40 percent, five percentage points below what Democrats wanted and 15 points below the Clinton-era level. (Just to be clear, Republicans didn’t lift a finger to stop the regressive payroll tax going up but threw a fit to hold down the extremely progressive estate tax.) Indeed, the president gave up around a quarter of the $800 billion in revenue that just days ago he told Speaker Boehner he got “for free.” Depending on how the debt ceiling fight shakes out (see truth #5), the president has quite possibly squandered liberals’ best chance in years for a fairer tax system.
• The Republican party continues to rely on holding the nation hostage. As I’ve just noted, the president made several big concessions to the GOP; largely speaking, these concessions were made in order to secure what stimulus he was able to get: an extension of unemployment insurance and continuations of several expanded tax credits. The Republicans effectively threatened to bog down the economic recovery until they got what they wanted. And soon, for the second time in two years, the GOP will threaten the country with economic ruin (via forcing the government to default on its bills) to advance its agenda. This is nothing less than the behavior of a party that has abdicated all responsibility for governing.
• The legacy of this deal almost entirely depends on whether Obama stands firm on the debt ceiling. As Zaid Jilani and others have pointed out, the Republicans who backed this deal have agreed to it because they think it takes away the president’s leverage and they’ll be able to force his hand in negotiations to avoid the debt ceiling. The truth is this is a pretty safe bet: The president has made a habit of caving on things he promised he wouldn’t negotiate on. Remember, last summer, when faced with default, the president made a series of extraordinarily generous offers to Republicans, cutting entitlements and other (non-defense) spending far more than raising revenue.
That being said, it’s worth noting that after Republicans rejected that in hopes of an even better deal, they were still scared enough of the debt ceiling that Mitch McConnell set up a relatively unfavorable (to Republicans) sequester to avoid it. If the president caves and agrees to significant cuts and little revenue, this temporary GOP retreat will look extremely smart. If he stands firm, though, in a better political situation than the summer of 2011 and gets Republicans to concede more revenues, the president will have — on the whole — won an important victory.
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