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The New Year's Day deal in Washington averting the 'fiscal cliff' was good news on Wall Street, where the political compromise led the Dow Jones industrial average to rise more than 300 points in Wednesday's trading.
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By ANDREW TAYLOR
WASHINGTON--Onward to the next fiscal crisis. Actually, several of them, potentially. The New Year's Day deal averting the "fiscal cliff" lays the groundwork for more combustible struggles in Washington over taxes, spending and debt in the next few months.
President Barack Obama's victory on taxes this week was the second, grudging round of piecemeal successes in as many years in chipping away at the nation's mountainous deficits.
Despite the length and intensity of the debate, the deal to raise the top income tax rate on families earning over $450,000 a year--about 1 percent of households--and including only $12 billion in spending cuts turned out to be a relatively easy vote for many. This was particularly so because the alternative was to raise taxes on everyone.
But in banking $620 billion in higher taxes over the coming decade from wealthier earners, Obama and his Republican rivals have barely touched deficits still expected to be in the $650 billion range by the end of his second term. And those back-of-the-envelope calculations assume policymakers can find more than $1 trillion over 10 years to replace automatic across-the-board spending cuts known as a sequester.
"They didn't do any of the tough stuff," said Erskine Bowles, chairman of Obama's 2010 deficit commission. "We've taken two steps now, but those two steps combined aren't enough to put our fiscal house in order."
In 2011, the government adopted tighter caps on day-to-day operating budgets of the Pentagon and other cabinet agencies to save $1.1 trillion over 10 years.
News of the agreement caused financial markets to rise around the world Wednesday.
The measure passed Tuesday prevents middle-class taxes from going up while raising rates on higher incomes. It also blocks severe across-the-board spending cuts for two months, extends unemployment benefits for the long-term jobless for a year, stops a 27 percent cut in Medicare fees paid to doctors, and prevents a possible doubling of milk prices.
The alternative was going over the cliff, an economy-punching half-trillion-dollar combination of sweeping tax increases and spending cuts. Despite the deal, the government partially went over the brink anyway with the expiration of a two-year cut in Social Security payroll taxes of two percentage points.