When push came to shove, Republicans and Democrats came together for a last-minute bi-partisan compromise on the so-called fiscal cliff, a combination of automatic spending cuts and tax increases that would have plunged the nation back into recession. The deal passed the Senate overwhelmingly after marathon negotiations between Minority Leader Mitch McConnell and Vice President Joe Biden. Just eight senators voted against it, and although it technically came after the midnight deadline, the New Year's holiday afforded Congress the chance to finalize the deal before the markets — or the general public — had time to react. House Republicans balked at the deal, but as of last night, House Speaker John Boehner planned to bring the Senate bill up for a vote, and it appeared possible that it could pass on the strength of most Democrats and some Republicans.
Does this signify a sudden outbreak of common sense and responsibility in Washington? Sadly not. Even if all goes according to plan in the House and the bill is signed promptly by President Barack Obama, it signals trouble ahead.
Much of the early commentary about the compromise, which allows a return to Clinton-era tax rates for income over $400,000 a year for individuals and a phasing out of deductions and credits for those who make more than $250,000, has cast it as, if not a victory for the president, then at least more of a win for him than for the Republicans. After all, the GOP has not supported a tax increase since George H.W. Bush was in the White House. But in truth, it amounts to more of a tactical retreat for Republicans.
They agreed to put off the mandatory spending cuts made under a process known as sequestration, but only for two months. And they did not agree to one of Mr. Obama's key demands: an increase in the debt ceiling. Without Congress' approval of another increase in the debt ceiling, the government will run out of money to pay its bills in February, and Republicans are once again saying they will not cooperate unless the Democrats agree to cut spending by an amount equivalent to the debt limit increase.
That's a cynical and potentially catastrophic ploy. The debt limit does not control spending. Congressional appropriations do. Refusing to raise the debt limit merely prevents the nation from paying for the programs Congress has already authorized. And if the nation defaults, even briefly, the resulting diminution of global confidence in America's commitment to paying its debts would be irreversible and far more damaging than a brief dive off the fiscal cliff.
President Obama says he won't bargain with the Republicans over the debt limit again, but why should they believe him? He said he wouldn't negotiate over the extension of the Bush tax cuts for income over $250,000, and look where that got us. Mr. Obama took a deal that produces less revenue than even Mr. Boehner had been willing to agree to last month. It includes the temporary extension of unemployment insurance and certain tax credits the president favors, but at the price of permanent concessions on marginal tax rates and the estate tax.
Mr. Obama said in a news conference on Monday that he would insist that further deficit reduction be achieved in a balanced way — that is, by both higher taxes and lower spending. The implication is that he thinks that since Republicans have voted once for a bill that increases taxes, they will be willing to do so again. That may be a tragic miscalculation. Had they not accepted this deal, then taxes would have gone up on nearly all Americans, and by waiting until after midnight on New Year's Eve to vote, Republicans were technically supporting a tax cut, not an increase. Even anti-tax enforcer Grover Norquist said on CNN that if he were in the Senate, he would have voted for the bill. Look for Republicans to explain away this vote as a product of peculiar circumstances rather than a change in their hard-line no-new-taxes policy.
As a matter of substance, the Biden-McConnell compromise is neither great nor terrible. It contains some good provisions and some bad ones. But as a matter of politics, it could wind up being a disaster. Rather than bringing the parties together in the national interest, it sets the stage for more Republican gamesmanship while the economy hangs in the balance.