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Fiscal Cliff Update: The Lingering Uncertainty

by Toni Johnson
January 4, 2013

Democratic leader Nancy Pelosi and Speaker of the House John Boehner the first day of the 113th Congress in Washington January 3, 2013. (Kevin Lamarque/Courtesy Reuters) Democratic leader Nancy Pelosi and Speaker of the House John Boehner the first day of the 113th Congress in Washington January 3, 2013. (Kevin Lamarque/Courtesy Reuters)

Congress was able to come to a last minute deal to stave off going over the so-called fiscal cliff, with President Obama signing a compromise fiscal package into law on January 2, 2013. 

This chart compares several alternative fiscal cliff proposals with the final compromise legislation courtesy of the Washington Post’s Wonkblog:

The full text of the American Taxpayer Relief Act of 2012 signed by the president can be read here.

Yet, with a debate on the debt ceiling looming and the (now-delayed) budget sequester coming down the road in the next several weeks, experts say things remain uncertain as Obama enters his second term.

CFR’s Robert Kahn, in a recent blog post, says the cliff is dead, long live the cliff:

This deal avoids hard choices and ensures continued policy uncertainty that will be a drag on the economy. It produces a small amount of revenue and makes permanent tax rates that are too low for the long term.  For all these negatives, give this deal a grade of incomplete.

The Politico reports President Obama will not enjoy much of a victory lap from his win over congressional Republicans on the fiscal cliff fight in last days of his first term, for about 16 trillion reasons:

The staggering national debt — up about 60 percent from the $10 trillion Obama inherited when he took office in January 2009 — is the single biggest blemish on Obama’s record, even if the rapid descent into red began under President George W. Bush.

Obama has long emphasized Bush’s role in digging the immense hole. But he owns it now, and it’s a significant political liability as he girds for a fast-approaching brawl with the GOP over how to deal with converging deadlines of a new debt ceiling fight and the need to come up with $1 trillion in deficit reduction mandated by the so-called “sequester.”

Though a number of analysts have criticized the performance of 112th Congress, which ended on January 3, CFR’s Edward Alden, in recent blog post, says maybe they shouldn’t get as much blame as they have, since “this Congress actually got many of the big things right”:

It is unquestionably true that difficult decisions about how to bring revenues and spending into balance with an aging population have yet to be made. But it’s hard to single out the 112th Congress here. Various commissions have warned for two decades now that the United States needs to reform its entitlement programs, and many Congresses have failed to step up even in much stronger economic times when the decisions would have been easier politically. It’s also true that the new Congress and the President will be revisiting the fight over taxes and spending cuts almost immediately, which is a spectacle all of us would prefer not to watch again and again. But politics are rarely pretty.

The best that can be said of the 112th is that it muddled through. It was ugly, but the results were not half-bad. That’s an accomplishment worth acknowledging.

Read CFR’s Backgrounder on the debt ceiling debate here, and this CFR Backgrounder looks more broadly at U.S. deficits and national debt.

 

 

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