January 1st 2012 at 10:57 p.m. EST, the House of Representatives voted 257 vs. 167 to pass the fiscal cliff deal brokered in the Senate. President Obama has said he will sign the legislation into law. We have avoided going over the cliff and raising taxes on all Americans. What a great day to be in America!
Kind of. Don’t get me wrong, we needed a deal. We had to avoid going over the fiscal cliff because our fragile economy is still on a slippery slope in recovery. However, this bill is not the final answer and everyone involved with it knows this is true. Yes, this bill makes the Bush-era tax cuts for those making under $400,000 as an individual or $450,000 for a couple permanent and the rates for those higher earners return to the Clinton-era rates. Yes, unemployment benefits have been extended for an estimated 2 million Americans. Yes, this is a step in a much needed direction. However, this is not over.
The debt ceiling has not been raised. You remember that fight, right? The fight that led to the downgrade from the credit bureau, the fight that entrenched Republicans have vowed never to lose again, is about to be had again. On Monday, Tim Geitner made the announcement that we have hit our current debt ceiling of $16.394 trillion. This fight will be had over the next month or two and both sides seem entrenched in their positions. With a Democratic Senate and President and a Republican House, this fight could get ugly.
There still is no Continuing Budget Resolution. The Congress is supposed to pass a budget to you know, plan how they are going to spend the money. However, they have gotten very good at not doing that. Instead, they pass continuing resolutions to patch the problem and the current patch comes off on March 27th. At that point, they will have to come up with either another patch or, perhaps pass an actual budget? However, the budget scenario seems very unlikely since they can’t seem to really work together. If a deal cannot be made, a temporary shutdown of the government is a possibility.
Finally, there is the actual fiscal cliff, the Sequester. The Sequester are the automatic spending cuts, 8-10% for most departments including defense, born from the debacle that was the debt ceiling debate in 2011. The thought was that these cuts would be so terrible that both sides would have no choice but work together and make sure they are not enacted. This bill simply postpones those for two months. We still have to actually come to an agreement about the spending cut side of the equation.
All that said, we are in a better financial position on Wednesday. We have raised revenues while protecting the income tax rates of the middle and lower class permanently. However, this is far from a finished story since the need for spending cuts and savings in government spending is still unresolved and kicked down the road for the new Congress to take care of when they take their offices.