Lawmakers in Washington provisionally reached a deal (nothing yet is set in stone as I write) to avoid going over a “fiscal cliff” of their own infernal design.
Except that, technically, the country will go over the cliff, as the House won’t vote on the measure—a compromise reached by Vice President Biden and Sen. Mitch McConnell—until tomorrow, or possibly Wednesday.
Grover Norquist went the full Orwellian, maintaining this deal, which raises taxes on individuals making $400,000 and couples making $450,000—the first such increase in 20 years—is not really a tax increase.
And to top it off, half of what made the fiscal cliff so threatening to the fragile economic recovery—roughly $1 trillion in “sequestration” cuts to the federal budget over 10 years—has been delayed for two months, right around the time that a fight over the debt ceiling will be in full swing.
The short version: We went over the cliff, but not really. Everyone’s taxes will go up in 2013 (if you account for expiration of the payroll tax holiday). And we get to do it all again two months from now. Which means the cliff was just a bridge to another cliff. Or something like that.
As to the question of who “won” the standoff, that verdict, too, is murky. On its face, the deal is a victory for the White House and Democrats in Congress. They didn’t get the revenue they’d been seeking—they’ll get about $600 billion, well short of the $1.2 billion compromise nearly reached with House Speaker John Boehner—but they gave up virtually nothing in spending and extended unemployment insurance for a year without offsetting the $30 billion pricetag. The key, as uneasy liberals have noted, is what it will mean for debt-ceiling negotiations. With taxes off the table, will the focus henceforth be squarely on cutting spending, as Republicans insist? Or will Obama extract more revenue for any cuts he agrees to, as he insisted in a press conference Monday?
How this will play out is anyone’s guess, but it’s hard to bet against the assumption that Congress will find some way to avoid imposing pain in the short term.
We’re all still Keynesians now, like it or not.