MORNING MESSAGE: An Ugly Deal
OurFuture.org's Robert Borosage: "The most ominous part of the deal is what was left out. The deal makes no provision for lifting the debt ceiling. It postpones the sequester (automatic cuts in domestic and military spending) for only two months. It is a smaller deficit reduction package than that originally sought by the president. It therefore sets up the right-wing House zealots to hold the economy hostage once more, while demanding deep cuts in public services (known as cuts in domestic spending), backed by a media frenzy about deficits. And while Social Security, Medicare and Medicaid escaped unscathed in this deal, they will be the prime targets in the coming debate."
Deal Clears Congress
House passes Senate bill to raise taxes on top 2%, end payroll tax cut and delay sequester spending cuts for two months. NYT: "The measure, brought to the House floor less than 24 hours after its passage in the Senate, was approved 257 to 167, with 85 Republicans joining 172 Democrats in voting to allow income taxes to rise for the first time in two decades, in this case for the highest-earning Americans. Voting no were 151 Republicans and 16 Democrats … Speaker John A. Boehner, who rarely takes part in roll calls, voted in favor. Representative Eric Cantor of Virginia, the majority leader, and Representative Kevin McCarthy of California, the No. 3 Republican, voted no. Representative Paul D. Ryan, the budget chairman who was the Republican vice-presidential candidate, supported the bill."
Republicans end 20 years of opposing tax increases on the wealthy. Politico: "…members of the GOP have violated the party’s no-new-taxes orthodoxy for the first time in two decades. It’s a significant concession in the aftermath of Mitt Romney’s November defeat and a potentially existential moment for a party that has prided itself on a defiant and dogmatic dislike of tax increases. What remains to be seen is whether that is merely a tactical retreat – bowing to the unique circumstances of the fiscal cliff – or a more meaningful cave-in on the part of Republicans who believe that their anti-tax platform has become politically unsustainable…"
But end of temporary payroll tax cut will hit middle class. NYT: "…for most lower- and middle-income households, the payroll tax increase will most likely will equal or exceed the value of the income tax savings. A household earning $50,000 in 2013, roughly the national median, will avoid paying about $1,000 more in income taxes — but pay about $1,000 more in payroll taxes … the top 1 percent of households will see an average income tax increase this year of $62,000…"
Deal protects help for low-income and unemployed. NYT: "The Obama administration did win a five-year extension of tax breaks for lower-income families, including the child tax credit and earned-income tax credit. Those credits eliminate income tax liability for many lower-income families … The deal will also restore unemployment benefits for about two million Americans. People who can’t find work, and have already received government checks for the standard period of 26 weeks, have been able to stay on the rolls for up to an additional 47 weeks. But financing for that program, which is aimed at the states with the highest unemployment rates, expired Saturday. Under the terms of the deal, people who are eligible will receive any missed benefits retroactively."
Deal decreases deficit by $600B … or increases it by $3.9T. W. Post: "The nonpartisan Joint Committee on Taxation estimates that the entire package will increase the deficit by $3.9 trillion over 10 years, with a $280 billion increase in 2013 alone. That’s because the JCT is comparing the deal to what would happen if the entire fiscal cliff were allowed to take effect … The numbers look better if you compare the deal to a world in which we had kept the tax code the way it was in 2012: Then, the package raises more than $600 billion in additional revenue [after] the 2011 Budget Control Act has already cut discretionary spending by more than $1 trillion."
What's Next?
President Obama warns Republicans to back off debt limit flight. The Hill quotes: "While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed."
"Fiscal deal leaves central question of Obama presidency unresolved" writes W. Post's Greg Sargent: "The short term big picture is that Dems won on two major fronts — no entitlements cuts, and tax hikes for the rich — which helps explain conservative rage over the deal … The more serious problem for liberals is what the outcome says about what comes next. Obama had repeatedly insisted he would not budge off his demand that taxes go up on all income over $250,000. That obviously didn’t happen. The risk is that this will set a bad precedent for the next round in this fight, in which Republicans will hold the debt ceiling hostage to extract the deep cuts to entitlements they want."
Conservative Charles Krauthammer laments deal is a "complete rout for Democrats": "There are a lot of conservatives in the Republican caucus in the House who hate the bill for good reason. This is a complete surrender on everything."
Economist Brad DeLong says "I do not understand the Obama Administration": "The big reason to make a deal before January 1, 2013 was that detonating the 'austerity bomb' would impose 3.5% of fiscal contraction on the U.S. economy in 2013, and send the U.S. into renewed recession … But by my back-of-the-envelope count, the deal the Obama administration has agreed to still leaves a net fiscal impetus of -1.75% of GDP to hit the U.S. economy in 2013…"
