After months of debate and negotiation, Congress on Tuesday approved legislation to avoid the most immediate consequences of the “fiscal cliff” but that falls far short of the more comprehensive reforms that many advocates of fiscal responsibility had hoped to see.
Concord Coalition Executive Director Robert L. Bixby called it another “political punt” that “leaves much more to be done.” The plan, he said, “requires no hard choices and solves no difficult problems.”
Erskine Bowles and Alan Simpson, co-chairs of a national fiscal commission and co-founders of the Campaign to Fix the Debt, issued a statement last night calling the budget deal “truly a missed opportunity to do something big to reduce our long-term fiscal problems.”
Many economists and others had warned that going over the fiscal cliff — a scheduled combination of expiring tax cuts and poorly designed “automatic” spending reductions – could have thrown the country into another recession.
Vice President Joe Biden and Senate Republican leader Mitch McConnell took the lead in negotiating the final plan, which focused largely on tax policies while postponing the scheduled spending cuts for two months. It makes the Bush-era tax cuts permanent for most Americans and allows the scheduled increase to take place for those with the highest incomes. In addition, a temporary reduction in the payroll tax that supports Social Security is being allowed to expire.
The Congressional Budget Office estimated that relative to what had been current law — which included assumptions such as the expiration of the 2001/2003 tax cuts and the triggering of the automatic spending cuts — the legislation will increase deficits by almost $4 trillion over ten years.
But Jeff Zients, deputy director of the Office of Management and Budget, argued that it is more relevant to compare the legislation to what had been “current policy,” which assumed that Congress would extend the tax cuts and other expiring provisions. Using a current policy baseline, Zients estimates that the legislation will reduce deficits by $737 billion over ten years.
In a blog post yesterday, Bixby pointed out various shortcomings in the deal: “There is no entitlement reform, no tax reform and no framework or process for addressing these critical needs in 2013. Meanwhile, the indiscriminate and disproportionate discretionary spending cuts mandated by last year’s Budget Control Act are postponed, creating a new cliff.”
Bixby also notes that the deal fails to increase the statutory debt limit, so “it still looms as the next self-imposed crisis to remind everyone of how dysfunctional the legislative process has become on Capitol Hill.” The government officially hit its debt ceiling Monday although the Treasury can use what it calls “extraordinary measures” to avoid default for at least a few weeks.
Bixby urges the President and the new Congress to make it their first order of business to negotiate “a sustainable framework for spending, taxes, deficits and debt.” He also calls for a “reasonable debt limit increase to give the process time to work without a crisis of confidence over the government’s willingness to pay its bills.”
Statement from Campaign to Fix the Debt Co-Founders Erskine Bowles and Alan Simpson
Estimate of the Budgetary Effects of H.R. 8, the American Taxpayer Relief Act of 2012 (CBO)
Estimate of the Revenue Effects of H.R.8 (Joint Committee on Taxation)
Jan. 1 Statement by President Obama
Jan. 1 Statement by House Speaker John Boehner
Treasury Department Information and Warnings on Debt Limit
OMB Estimate on Budget Legislation