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The Good and Bad of the Fiscal Cliff Deal | The Nation

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George Zornick

George Zornick

Action and dysfunction in the Beltway swamp. E-mail tips to george@thenation.com

The Good and Bad of the Fiscal Cliff Deal


President Barack Obama and Vice President Joe Biden make a statement regarding the passage of the fiscal cliff bill in the Brady Press Briefing Room at the White House in Washington, Tuesday, January 1, 2013. (AP Photo/Charles Dharapak)

Many liberals are bashing the deal passed last night by Congress, and not without reason. Even Senate Majority Leader Harry Reid reportedly thought this was a bad deal, though he did buck up and support it.

There are some key ways this deal falls short. But let’s first credit what’s good about it:

Raising rates on top earners. If you’re a member of the top 1 percent, you don’t like this deal. For the first time in over a decade, people making over $450,000 in household income will pay a 39.6 percent income tax rate, up from 35 percent—thus achieving a long-held liberal goal of reducing the inequity of the Bush tax cuts. True, the threshold was raised from $250,000, but that only sacrifices $100–$200 billion in revenue over ten years. Meanwhile it’s broken the iron anti-tax ideology of the GOP. This shouldn’t be overlooked. Also, rates on capital gains and dividends rose to 23.8 percent from 15 percent on households earning over $450,000 per year. 

Extended unemployment insurance. Two million long-term unemployed Americans would have lost benefits if no deal was reached, and another 1 million in the first quarter of 2013. Now they won’t, which provides a critical boost to the economy and a helping hand to the victims of an awful economic crisis.

No Medicare, Medicaid  and Social Security cuts. This is also a big win. For months, well-funded Wall Street and corporate interests flooded the airwaves with ads demanding that Washington “Fix the Debt,” and sent a steady stream of lobbyists and advocates through offices across the capital. One of the overriding goals of this effort—particularly the stuff funded by Peter G. Peterson—was to cut the social safety net. They failed miserably, and this is a significant victory not only on the policy merits, but because these Very Serious People were exposed as having no real public constituency and accordingly not nearly as much clout as everyone feared.

Sequesters delayed. This isn’t over—more on this in the bad news section—but the non-defense domestic cuts could have been devastating, and now won’t happen. It’s true this will come up again in two months, but the Democrats haven’t given anything away until they have. Republicans are seeing a disturbing trend of being promised spending cuts and then not getting them—this is the third time they’ve been put off.

Some good tax breaks. Obviously not the desired stimulus of most liberals, but it’s important that the Opportunity, Child and Earned Income tax breaks were extended for five years, which aids many middle- and lower-class Americans. The wind power industry also received significant tax help, so there’s something for environmentalists to like too. (They were also encouraged that the non-defense sequester didn’t ravage the EPA and other important federal environmental initiatives).

Farm and dairy fixes. The expiration of the farm bill could have been devastating for working farmers, and has for now been avoided. A lapse in federal dairy support would have sent prices soaring and hurt many families already stretching paychecks to buy food.

That’s all rightfully being praised by Democrats that support the deal. They’re not wrong to do that. But here’s what has a lot of progressives ticked off:

No future standoffs avoided—and more are created. By delaying the sequesters, Obama has set up another spending fight (in addition to the one over funding the government in March when the current continuing resolutions run out)—and one in which he doesn’t have the leverage of the expiring Bush tax cut rates. Obama insists that he will still insist on one dollar in revenue for every dollar in cuts during those talks, but that’s going to be a dogfight. Also, despite an ironclad insistence earlier in these negotiations that the debt ceiling be permanently fixed, this deal achieves no fix. We’ve actually already hit the debt ceiling and the Treasury Department can only run the clock out until around February—so get ready for another epic showdown. Lindsey Graham is already hyping this as “Round 2,” in which he and presumably his colleagues will go to the mat for deep Medicare and Social Security cuts.

Taken en masse, the three remaining cliffs—with much of the revenue side of the equation already handled in the deal last night—could be disastrous for Democrats. It’s why Harry Reid told the White House he hated the deal, and even threw one version of it into the fireplace. And at least one progressive member of the House has given voice to the concerns of many. Rep. Jim Moran of Virginia gave an impassioned speech on the House floor last night in which he noted “the problem is, we have set up three more fiscal cliffs. We‘re gonna have to deal with the debt ceiling, we’re gonna have to deal with the continuing resolution expiration, and we’re gonna have to deal with the sequester. And all that’s left is spending cuts. And all that’s left to ask ourselves is, what programs do we cut and how deep do we cut them? We have to look back on this night and regret it.”

Too much revenue was given away. Raising the threshold to $450,000 in household income gave away as much as $200 billion in revenue over ten years, and there was an even deeper concession on the estate tax. Democrats initially wanted a 55 percent taxation rate on estates worth over $1 million, and settled for a 40 percent taxation rate on estates worth $5 million and over—with that level indexed to inflation. That’s nearly $400 billion in revenue lost. All told, Obama walked into these talks demanding $1.2 trillion in revenue—he told liberals at the White House in November he was firm on this number, according to our reporting—and came out with $620 billion in revenue. And for what did he give away half the farm? An unemployment extension and a handful of tax credits? That’s too much in the eyes of many liberals, especially when the rates went up automatically on January 1.

Not nearly enough stimulus. Obama came in talking a strong game, actually asking for around $50 billion in new federal spending to stimulate the economy in this deal. Not only did he fail to get any new stimulus whatsoever—he just extended some existing stimulative tax measures—Democrats gave up on the payroll tax cut, which had a huge economic impact. It was worth $1,000 per year to the average family, and letting it expire will shave 0.6 percent of GDP this year. It was replaced with exactly nothing in terms of stimulus. This was probably one of Obama’s last chances to get House Republicans to approve some economic stimulus—using crises for leverage isn’t the exclusive province of Republicans—and he whiffed on it.

Collateral Damage to federal workers and Sandy victims. To foam the runway for hardcore conservatives to accept a fiscal cliff deal, House Republicans pulled two abhorrent stunts: one, on Monday night they froze federal worker pay for another two years. There are about 2 million federal workers nationwide, and contrary to conservative dogma, they are not living large on the public dime. In fact they earn 34 percent less than their private sector counterparts, and will now see their wages frozen for two more years. This is a direct and punitive austerity measure, and one that was supported by fifty-five Democrats, including big names like Representatives Tammy Baldwin, David Cicilline and Steve Israel, who is also the head of the Democratic Congressional Campaign Committee. Meanwhile, to ease the jangled nerves of far-right Republicans who actually oppose federal aid to hurricane victims, House Speaker John Boehner pulled a Hurricane Sandy relief bill from the floor late last night during the final fiscal cliff vote. Americans whose property was ravaged by the storm and are waiting for help will have to keep waiting.

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In truth, we don’t yet know how bad this deal is. If President Obama and the Democrats do indeed fend off damaging spending cuts in the coming budget and sequester fights, and if they do ensure that what is cut is offset by new revenue—and if Obama does refuse to let the debt ceiling be used to enact slashing safety net cuts—then this deal is probably defensible on its merits. The top-earner tax hikes are good, so is the unemployment aid, and while there are a lot of other things that weren’t achieved, nothing grievous was really given away either. So it was probably a fair takeaway from tough negotiations with a GOP that still controls the House. But if this sets the stage for deep cuts in the future, liberals may come to rue this day.

For more on the fiscal cliff, read John Nichols on “Why Tom Harkin and a Handful of Other Progressives Opposed the Deal.”

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