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| President Barack Obama waves as he gets off Air Force One upon his arrival at Joint Base Pearl Harbor-Hickam, Honolulu, Hawaii, Wednesday, Jan. 2, 2013. The president is back in Hawaii for vacation after a tense, end-of-the-new-year standoff with Congress over the fiscal cliff. |
WASHINGTON (AP) -- 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.
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.
Action inside a
dysfunctional Washington now only comes with binding deadlines. So,
naturally, this week's hard-fought bargain sets up another crisis in two
months, when painful across-the-board spending cuts to the Pentagon and
domestic programs are set to kick in and the government runs out of the
ability to juggle its $16.4 trillion debt without having to borrow more
money.
Unless Congress increases or allows
Obama to increase that borrowing cap, the government risks a first-ever
default on U.S. obligations. Republicans will use this as an opportunity
to leverage more spending cuts from Obama, just like they did in the
summer of 2011.
House Speaker John Boehner,
R-Ohio, vows that any increase in the debt limit - which needs to be
enacted by Congress by the end of February or sometime in March - must
be accompanied by an equal amount in cuts to federal spending. That puts
him on yet another collision course with Obama, who has vowed anew that
he won't let haggling over spending cuts complicate the debate over the
debt limit.
The cliff compromise represented
the first time since 1990 that Republicans condoned a tax increase. That
has whipped up a fury among tea party conservatives and increased the
pressure on Boehner to adopt a hard line in coming confrontations over
the borrowing cap and the spending cuts that won only a two-month
reprieve in this weeks' deal.
Put simply,
House Republicans are demanding new spending cuts - possibly through
changes in Social Security and Medicare benefit formulas - as a scalp,
and they're dead set against raising more revenues through anything less
than an overhaul of the tax code now that Obama has won higher taxes on
the wealthy.
"Now the focus turns to
spending," Boehner said after Tuesday's vote, promising that future
budget battles will center on "significant spending cuts and reforms to
the entitlement programs that are driving our country deeper and deeper
into debt."
Obama is just as adamant on the
other side, saying higher revenues have to be part of any formula for
further diverting the automatic spending cuts.
While
conservative activist Grover Norquist gave Republicans a pass on
violating his anti-tax pledge with this week's vote, he and other forces
on the right won't be so forgiving on any future effort to increase
revenues.
The refusal of Republicans to
consider additional new taxes is sure to stir up resistance among
Democrats when they're asked to consider politically painful cuts to
so-called entitlement programs like Medicare. Democratic protests led
Obama and Boehner to take a proposal to increase the Medicare
eligibility age off the table in the recent round of talks.
The
upshot? More scorched-earth politics on the budget will probably
dominate the initial few months of Obama's second term, when the
president would prefer to focus on legacy accomplishments like fixing
the immigration problem and implementing his overhaul of health care.
The
relationship between Boehner and Obama has never been especially close
and seemed to have suffered a setback last month after the speaker
withdrew from negotiations on a broader deficit deal. The two get along
personally, but politically, a series of collapsed negotiations has bred
mistrust. The White House has the view that Boehner cannot deliver
while the speaker is frustrated that matters brought up in his talks
with the president are not followed through by White House staff.
And on the debt limit, Boehner and Obama at this point are simply talking past each other.
"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," Obama said after
the deal was approved.
Said Boehner spokesman
Michael Steel: "The speaker's position is clear. Any increase in the
debt limit must be matched by spending cuts or reforms that exceed the
increase."
