Top story: After fiscal cliff deal, what comes next?
With Obama’s signature, the fiscal cliff deal is now law. ”President Barack Obama signed legislation Wednesday to avert the fiscal cliff, turning the measure into law…Mr. Obama left Washington to return to his vacation in Hawaii after the House passed the bill Tuesday night. The White House received the bill late Wednesday afternoon, processed it and delivered a copy to the president for review, a senior White House official said.” Sudeep Reddy in The Wall Street Journal.
@Goldfarb: POTUS signed fiscal cliff bill using auto-pen.
When are the next battles in Congress? ”The ‘fiscal cliff’ debate may be over, but Congress’s battles are just beginning. In coming months, the new Congress that will take office Thursday will face a series of deadlines that will force lawmakers to confront the same issues they failed to resolve with Tuesday’s late night vote…Around the end of February: Extraordinary measures put in place by the Treasury Department to extend the nation’s $16.4 trillion legal borrowing limit will be exhausted…Beginning of March: Deep automatic spending cuts, split between the military and domestic programs, will take effect if there is no congressional action.” Rosalind S. Helderman in The Washington Post.
@mattyglesias: NB: Much of the higher tax burden on the rich is due to the Affordable Care Act, not the cliff deal.
Next: the debt ceiling. ”Only hours after Congress adopted a bill to avert the ‘fiscal cliff’ of tax increases and spending cuts, lawmakers on Wednesday began to clash over the limit on federal borrowing, inaugurating the next phase of Washington’s permanent fiscal war. Republicans said they will press their demand that spending be reduced dramatically in exchange for allowing any more U.S. borrowing. But President Obama and top Democrats insisted that their goal of raising the $16.4 trillion federal debt ceiling is non-negotiable.” Zachary A. Goldfarb in The Washington Post.
@damianpaletta: Moody’s: Fiscal cliff deal “does not…provide a basis for a meaningful improvement in the government’s debt ratios over the medium term.”
Get used to more fiscal cliffs. ”There is a fiscal cliff deal, and it will become law. That is the good news. Our long national nightmare of 34 hours having fallen off the fiscal cliff (and counting, until the president signs the legislation) is over. But most important thing to know about the deal is this: This resolves nothing.” Neil Irwin in The Washington Post.
@DouthatNYT: And easy to imagine different speaker failing to finesse govt shutdown, debt ceiling, and/or fiscal cliff, pitching US into real crisis.
Has the ‘fiscal cliff’ fight changed how Washington works? ”As ugly as they were, the ‘fiscal cliff’ negotiations produced something Washington hadn’t seen in a long time: strongly bipartisan votes in the House and the Senate on a big, contentious issue. The question now is whether that victory of pragmatism over ideology offers a new model of governing as President Obama approaches his second term and the shattered Republican Party tries to regroup. The answer: probably not, though it may have helped define the terms of engagement for the battles to come.” Karen Tumulty and Peter Wallsten in The Washington Post.
For Obama, the deal was a victory, but one with risks. ”For President Obama and his Democratic allies in Congress, the fiscal deal reached this week is full of small victories that further their largest policy aims. Above all, it takes another step toward Mr. Obama’s goal of orienting federal policy more toward the middle class and the poor, at the expense of the rich. Yet the deal, which the Senate and the House have passed and Mr. Obama is expected to sign soon, also represents a substantial risk for the president.” David Leonhardt in The New York Times.
@AnnieLowrey: In a tart, barely complimentary press release, the IMF indicates it is not impressed with the small-bore fiscal cliff fix.
How McConnell and Biden pulled Congress away from the fiscal cliff. ”With just 35 hours left, there was a phone message for Vice President Biden. About an hour later, after talking to President Obama, Biden called back. He heard a familiar drawl: ‘Does anyone down there know how to make a deal?’ Mitch McConnell of Kentucky, the Senate’s top Republican, wanted to know. That phone call — the first of at least 13 between the two longtime statesmen — set in motion what became the ugly, unsatisfying last-minute conclusion of the ‘fiscal cliff’ crisis.” David A. Fahrenthold, Paul Kane and Lori Montgomery in The Washington Post.
@noamscheiber: Who has thoughts abt how much worse cliff deal got as a result of Biden undercutting Reid? My sense is McConnel wouldve come back in the end
@ezraklein: The best part of the fiscal cliff debate was the coining of “sleep-deprived octogenarians” as a derisive description of the US Senate
@Reddy: Dow surges 308 points on a cliff deal that actually hurts 2013 growth. Imagine if they had done something more productive.
Why 85 House Republicans said ‘yes’ to taxes. ”It was one of the toughest votes they’ve had to cast in their congressional careers. But here’s why 85 House Republicans broke with most of their GOP colleagues — and decades of anti-tax orthodoxy — to back President Barack Obama’s tax hike bill: Their districts are conservative — but not so conservative that jumping off the fiscal cliff wouldn’t potentially backfire in the next election. A general-election challenge from the left is a bigger threat than a primary from the right. And being able to tell most of their constituents they shielded them from a big tax hike was more important than being accused by a vocal few of selling out Republican principles.” Alex Isenstadt in Politico.
Wonkblog explains: From NASCAR to rum, the 10 weirdest parts of the ‘fiscal cliff’ bill.
Deduction limits, a major source of tax increases. ”One of the biggest tax increases in the fiscal-cliff bill is also one of the least understood: a set of limits on tax deductions and other breaks that will hit far more households than the bill’s rate increases for top earners…[P]rovisions that reduce the value of personal exemptions as well as most itemized deductions, including those for mortgage interest and state income-tax payments, will affect about twice as many people since they carry a lower income threshold—$250,000 for singles and $300,000 for married couples…From a political standpoint, the limits allow the Obama administration to achieve its long-sought goal of raising taxes on people making more than $250,000. PEP and Pease represent about $150 billion of the tax increase of about $620 billion over 10 years, making them a key element of the deal.” John D. McKinnon in The Wall Street Journal.
@MichaelSLinden: Everyone is missing the best part of the fiscal cliff deal: no more (or at least much less) fighting about baselines!
The worst budget gimmick in the fiscal cliff deal. ”Buried in the fiscal cliff deal is a small provision with big political significance: The bill makes it much easier for ordinary Americans to convert traditional 401(k) retirement accounts into Roth accounts, which the Congressional Budget Office has scored to raise $12 billion over 10 years…The White House and congressional Democrats insisted on including the revenue-raiser to offset half of the sequester’s two-month delay. The other half of the sequester is offset by discretionary spending cuts. It’s not that much money, relatively speaking, but the idea was to establish the principle of a 1:1 ratio of spending cuts to revenue for deficit reduction — an idea strongly opposed by Republicans, who’ve demanded as much as a 10:1 spending cuts to revenue ratio. The only problem is that it’s highly unlikely to raise that much revenue in the long term—in fact, it’s at best likely to break even and at worst be a big revenue loser, tax experts say.” Suzy Khimm in The Washington Post.
Make between $200,000 and $500,000? Congrats, you got the best ‘fiscal cliff’ deal! ”The Tax Policy Center has totalled up all the tax changes under the bill and finds that two groups of Americans will have the lowest tax increase: Taxpayers with income between $200,000 and $500,000 and those with income between $10,000 and $20,000, both of whom will see their tax rate increase by 1 percentage point — a smaller hike than any other income group. Even those earning less than $10,000 will see a bigger 1.3 percentage point rate hike.” Suzy Khimm in The Washington Post.
Federal agencies bracing for cuts after ‘fiscal cliff’ deal. ”The fiscal pact Congress reached hours into the new year will delay $109 billion in automatic across-the-board spending cuts for two months. But it will make a down payment on those reductions that will affect federal operations this year and next…The cuts will be rolled into budget deliberations on Capitol Hill, and no one knows what agencies and programs they will affect. Out of a discretionary spending budget of $1.04 trillion, $12 billion is relatively small. But it’s not a rounding error.” Lisa Rein and Josh Hicks in The Washington Post.
MCCONNELL: Fiscal cliff deal not great, but it shields Americans from tax hike. ”Earlier this week, I helped negotiate an imperfect solution aimed at avoiding the so-called ‘fiscal cliff.’ If I had my way taxes would not have gone up on anyone, but the unavoidable fact was this if we had sat back and done nothing taxes would have gone up dramatically on every single American, and I simply couldn’t allow that to happen.”Sen. Mitch McConnell in Yahoo! News.
KLEIN: Calm down, liberals. The White House won. ”The frustration I’m hearing [from the left] in the aftermath of the fiscal cliff deal is different [than from past White House compromises]. First, it’s less fury than disappointment. In the aftermath of these deals — with the possible exception of the 2011 debt-ceiling crisis — there’s usually a core group of liberal pragmatists who think the White House did indeed outfox the Republicans, even if much of the left is angry over the deal. This time, those sources seem to think the White House got outfoxed, that they traded a lot of leverage for a little revenue, and they’re depressed over it. Second, the disappointment is more total than I can remember it being at any time since the debt-ceiling crisis. I literally have not had one conversation in the last 24 hours in which the person on the other side of the phone tilted positive on the deal.” Ezra Klein in The Washington Post.
@Goldfarb: I like this fiscal cliff deal’s version of tax reform is to add tax breaks.
SILVER: Why it’s hard to score the fiscal deal. ”[T]he attention paid to these tactical considerations is a bit disproportionate. They seem to make it easy to declare ‘winners’ and ‘losers’ at every turn in the negotiations — whereas evaluating the deal in terms of the actual policy impact is much trickier. Why is this so? Because each side has a variety of plausible strategic imperatives when it comes to fiscal policy – and they don’t necessarily yield the same policy preferences. Take the deal from the Democratic or liberal perspective, for example. What were Democrats’ major strategic goals? For some liberals, the goal might be redistribution: to adopt a series of policies that result in a net transfer of wealth from high-income earners to middle- or low-income earners. Other Democrats (and Republicans) might view the deal from the standpoint of taxes vs. spending: what is the ratio of tax increases to spending cuts?” Nate Silver in The New York Times.
@BobCusack: The Hill identified 92 GOPers who have voted consistently with Boehner this Congress. Most voted yes on Senate cliff bill; 28 were noes
PEARLSTEIN: Congress tries democracy for a change. ”Here’s the biggest winner in the fiscal cliff deal: majority rule. Congressional rules reform is a subject guaranteed to make the eyes glaze over. But if you want to know Congress why gets nothing done, it is not primarily because the country is hopelessly divided or the sensible center has disappeared from the American electorate, but because neither the House nor the Senate allows a majority of its members to work their will.” Steven Pearlstein in The Washington Post.
BLOW: Cliff after cliff. ”[W]e are most likely in store for a never-ending series of cliffs for our economy, our government and indeed our country. Soon we’ll have to deal with the sequester, a debt-ceiling extension and possibly a budget, all of which hold the specter of revisiting the unresolvable conflicts and intransigence of the fiscal cliff. Imagine an M. C. Escher drawing of cliffs…We have moved from a type of governance where the art of the compromise was invaluable to one where adherence to ridiculous pledges is inviolable…The change has taken place primarily among Republicans, who have struggled to balance the responsibilities and prerogatives of minority-party status with the anxiety of losing their long-held power at the expense of the growing influence of minority and historically marginalized constituencies like women and gays.” Charles Blow in The New York Times.
DIONNE: This deal is good. ”To be deemed a serious analyst at the moment seems to require a lot of hand-wringing and sneering over how awful Congress looked the past few days as it rushed a ‘fiscal cliff’ deal into law. So permit me to burn my membership card in the League of Commentators and Pundits. The cliff deal made our tax code more progressive. The top income tax rate is back up to 39.6 percent. Capital gains taxes, cut repeatedly since the 1970s, were raised. Consider: The provisions enacted Tuesday night, combined with the tax hike in the Affordable Care Act, mean that capital gains taxes will now be 18.8 percent for couples with annual incomes of more than $250,000 and 23.8 percent for couples earning over $450,000.” E.J. Dionne in The Washington Post.
CROOK: Phony crises. ”Instead of dealing calmly with the problem, fiscal policy has settled into a mode of perpetual phony crisis. Phony doesn’t mean harmless, however. The risk of a real fiscal crisis gradually builds. Meanwhile, the cumulative effects of simulated crisis might be almost as bad. It’s the difference between an acute illness and a chronic wasting disease — one that’s beginning to look incurable.” Clive Crook inBloomberg.
YGLESIAS: The next fiscal cliff. ”The intersection of the sequester cuts and the debt ceiling may provide a way out. Obama and the GOP could agree on a package of cuts to replace the sequester, and that legislation could also hike the debt ceiling. That would let Republicans say the debt ceiling hike was paired with spending cuts, while Obama can say he negotiated the sequester, not the debt ceiling. But that still leaves the question of what package of cuts the two sides could agree to.” Matthew Yglesias in Slate.
Music recommendations interlude: R.E.M., “Shiny Happy People,” 1991.
GOLDHILL: The Affordable Care Act won’t mean a healthier nation. ”Many people in health care saw passage of the Patient Protection and Affordable Care Act in 2010 as an historic achievement, a reshaping of how health care is practiced in the U.S. In truth, the new law has remarkably limited objectives. Its single goal is insurance expansion…ntegrated medicine, best practices and promotion of primary care get only ‘pilot program’ treatment. The ACA doesn’t mandate enough change to have risked the political opposition of industry interests. Indeed, the law’s most obvious characteristic is its continuity with our existing system. Step away from the sound and fury of politics, and the 2010 health-care law is laid bare as a technocrats’ approach to saving our current system while expanding it to cover more people.” David Goldhill in Bloomberg.
Cheap guns! Cheap meth! Click here! “Want to buy illegal drugs in China? No problem — just go to the wild and woolly Internet here and order a $50 or $100 package of methamphetamines, ecstasy or cocaine. It’ll be delivered to your door within hours!” Nicholas Kristof in The New York Times.
HENNINGER: Repealing Reagan. ”For the past 25 years, the American left has lived and breathed the political goal of undoing the Reagan legacy on taxes and spending…Reagan’s philosophy was an anathema to the left. It was his novel postwar idea to make people less in thrall to Washington’s investment choices and more reliant on their own ideas for using capital. The ’86 tax act reduced tax rates on personal income and also famously gutted many nonproductive ‘tax shelters.’ In short, simplification…Though the tax carve-out habit resumed after Reagan, this New Year’s passage of the American Taxpayer Relief Act of 2012 marks the return of the progressive tax utopia, with a great many Finlandized business interests complicit. In the anti-Reagan model, the favored fish — left-wing constituencies and bloodless commercial interests — swim through streams of revenue processed by the tax code out of the general fund and back to the favored fish.” Daniel Henninger in The Wall Street Journal.
Extraterrestrial interlude: A tour of the International Space Station.
The 113th Congress
New Congress, old fights. ”[T]he next Congress will start with the bitter aftertaste of the last, which left a long list of unfinished business and political scores to be settled…Though most of the new Congress will look the same as the old, the next session will boast a record number of women — 20 in the Senate and 81 in the House — and will be more racially diverse, with more black, Latino and Asian lawmakers.” Ed O’Keefe and Rosalind S. Helderman in The Washington Post.
KLEIN: Good riddance to the 112th. ”What’s the record of the 112th Congress? Well, it almost shut down the government and almost breached the debt ceiling. It almost went over the fiscal cliff (which it had designed in the first place). It cut a trillion dollars of discretionary spending in the Budget Control Act and scheduled another trillion in spending cuts through an automatic sequester, which everyone agrees is terrible policy. It achieved nothing of note on housing, energy, stimulus, immigration, guns, tax reform, infrastructure, climate change or, really, anything. It’s hard to identify a single significant problem that existed prior to the 112th Congress that was in any way improved by its two years of rule.” Ezra Klein in Bloomberg.
COLLINS: The next Congress. ”Right now you are probably asking yourself: Will the new Congress being sworn in this week work any better than the last one? There’s always a chance. Because, you know, it’s new. Also, the bar is low, since some people believe the departing 112th Congress was the worst in history, because of its stupendous lack of productivity and a favorability rating that once polled lower than the idea of a Communist takeover of America…The best argument I can make for it is that none of the outgoing members walked onto the floor and brained a colleague with a cane, as did happen in the 34th Congress…The new Congress will have a few more Democrats in the House and Senate, which will not make any difference whatsoever. On the plus side, the proportion of political nut jobs may be a little lower.” Gail Collins in The New York Times.
XKCD interlude: On New Year’s resolutions.
Hurricane Sandy and the political storm
House adjourns with no Sandy vote. ”The House adjourned Wednesday shortly after 12:30 p.m., making it a virtual certainty that the House will not approve a Hurricane Sandy relief bill until the 113th Congress convenes.” Pete Kasperowicz in The Hill.
Republicans attack Boehner for lack of Sandy aid. ”The speaker faced an extraordinary barrage of criticism from outraged members of his own party for not bringing a $60 billion relief package for victims of Hurricane Sandy to a vote in the House before the end of the 112th Congress…But after a closed-door session with the New York and New Jersey congressional delegations, Boehner announced that the House would vote on the measure in two phases — first on Friday, for $9 billion in flood assistance, and then on an additional $51 billion on Jan. 15, the first full legislative day of the new Congress in the House.” Nia-Malika Henderson and Ed O’Keefe in The Washington Post.
Obama calls for immediate Sandy aid vote. ”President Obama today called on the House to immediately pass a plan to provide federal aid to deal with damage caused by Hurricane Sandy…Obama weighed in on the controversy in a White House statement issued shortly after the president returned to his Hawaii vacation.” Ed O’Keefe in The Washington Post.
MILBANK: Defined by a Sandy sidestep. ”Boehner’s last-minute decision to let the 112th Congress fade into history without a vote on the $60 billion Hurricane Sandy relief package for the Northeast. In a sense, this was an outrage, because such recovery bills traditionally pass without a fuss. But in another sense, it followed a familiar script: Tea party Republicans balked at taking up the spending bill (it had enough votes to pass), and because the tea party rules the House GOP, Boehner obeyed rather than risk his reelection as speaker on Thursday. The Sandy sidestep provided a perfect coda for the first two years of this Republican-controlled House, which only by a loose definition can still be called a legislative body.” Dana Milbank in The Washington Post.
THE NEW YORK TIMES: A dereliction of duty. ”Whether Mr. Boehner can revive the Senate package in a few weeks, as now promised, is uncertain, because it’s not clear whether he actually leads the right-dominated Republican caucus anymore. House Republicans are now looking at a patchwork response, starting with a $9 billion down payment mostly for flood insurance. The rest, if it comes at all, would come in other measures.” The New York Times Editorial Board.
BLAKE: The Sandy failure. ”In the wee hours of Tuesday night/Wednesday morning, the House decided against bringing up a bill to provide $60 billion in relief to New York and New Jersey to help those two states recover form the devastation of Hurricane Sandy. And it’s a decision that Speaker John Boehner (R-Ohio) is already being made to regret…What’s more, this situation has all the makings of a major headache for the Republican Party, which already has major brand problems and comes away from the ‘fiscal cliff’ looking even more wounded given the package’s lack of spending cuts. After all, it’s not often you see one of your own members calling for the public to stop donating to his own party.” Aaron Blake in The Washington Post.
Gangnam Style remakes interlude: Canadian Iniut edition.
U.S. now on pace for European levels of austerity in 2013. ”[T]he United States is now on pace to engage in about as much fiscal consolidation in 2013 as many European nations have been doing in recent years — and more than countries like Britain and Spain. A back-of-the-envelope calculation suggests Congress has enacted around $374 billion in tax hikes and spending cuts for the coming year, an austerity package whose total size comes to about 2.1 percent of GDP…Britain has earned a lot of criticism for its austerity programs in the past two years. But at a total size of 1.5 and 1.6 percent of GDP, each of those two deficit-reduction years were smaller than what the United States is planning this year. The United States is also planning to cut and tax more heavily this year than Spain did in 2010 and 2011. Or France. That said, we’re nowhere near Greek or Portuguese or Irish levels of austerity.” Brad Plumer in The New York Times.
After fiscal cliff deal, big gains on Wall Street. ”Shares in more speculative investments rose much faster than blue chips, sending the Russell 2000 index of smaller companies up 2.8 percent to 873.42, its highest level ever. The benchmark S.& P. 500-stock index rose 2.5 percent, or 36.23 points, to 1,462.42. One more day of the same magnitude will bring the index to its highest level since the 2008 financial crisis…The Dow Jones industrial average rose 2.4 percent, or 308.41 points, to 13,412.55. The Nasdaq composite index increased by 3.1 percent, or 92.75 points, to 3,112.26. Only 31 stocks in the S.& P. 500 dropped on Wednesday. Technology and financial stocks did particularly well, as did stocks that offer generous dividends.” Nathaniel Popper in The New York Times.
December was a good month for American manufacturing. ”The Institute for Supply Management, a trade group for purchasing managers, said on Wednesday that its index of manufacturing activity rose in December to 50.7. That is up from a reading of 49.5 in November, which was the lowest reading since July 2009, one month after the recession ended. A reading above 50 indicates growth, while a reading below signals contraction. A measure of employment increased last month to 52.7. That is up from 48.4 in November, which was the first time the employment gauge fell below 50 in three years.” The Associated Press.
But business leaders say ‘cliff’ deal won’t ease economic uncertainty. ”A day after Congress managed to avert the fiscal cliff, business leaders warned that the agreement will hurt sales and hiring, won’t unlock investment and leaves the economy riddled with congressionally imposed land mines for months to come…But analysts warned that the gains could evaporate, especially once lawmakers move on to their next economically perilous battle over raising the federal borrowing limit — a battle the cliff agreement did nothing to resolve.” Jim Tankersley in The Washington Post.
Financial reform battle continues over Dodd-Frank law. ”The fate of financial reform may be decided in the coming year as congressional leaders on both sides of the aisle attempt to modify the Dodd-Frank Act…[R]hetoric has softened and bipartisan alliances have formed, leading some analysts to anticipate that meaningful legislation will be on the agenda next year.” Danielle Douglas in The Washington Post.
DAVIDSON: What will be the new economic normal? ”Despite a worse-than-expected holiday season, the Federal Reserve forecast that G.D.P. growth would approach the historic average of about 3 percent in 2013. The economy may be coming back, but the question for many businesses is what the new ‘normal’ looks like. Will shoppers spend as they did in the credit-bubble years? Or has the Great Recession scared them into prolonged stinginess? Early evidence suggests a mix. What is clear is that the big changes are just beginning.” Adam Davidson in The New York Times.
XKCD interlude: On New Year’s resolutions.
Gun control after Newtown, Conn.
‘Gun control’ doesn’t survive Christmas. ”On the day of the Sandy Hook elementary school shooting in Newtown, Conn., we published a chart showing the Sisyphean nature of the national gun control discussion. In the immediate aftermath of a shooting, such as the one that took place in Aurora, Colo., mentions of the term ‘gun control’ spike in the news media. In a matter of days, that discussion all but disappears. This time was supposed to be different…Blame it on the fiscal cliff, blame it on Christmas, blame it on our ability to forget, but the national discussion about gun control has once again ebbed. Mentions of the term ‘gun control’ on television, in newspapers, and in online media are down to pre-Sandy Hook levels, according to the Nexis database.” Dylan Byers in Politico.
EISGRAU: How to pass an assault-weapons ban. ”[T]he law needed support from lawmakers who had viewed prior legislative efforts as toothless, as well as those who feared that a ban on assault weapons could lead to the confiscation of guns used for hunting and target shooting…The third and most critical section was Appendix A, which listed every single hunting rifle and shotgun in use at the time — there were hundreds — that didn’t run afoul of the features test in the second component. Those firearms were unequivocally exempted from the bill. At the time, gun-control advocates resisted the incorporation of Appendix A. But the idea behind it was and remains crucial to making any meaningful changes in America’s gun laws. They must gain the support of gun owners, most of whom are heartsick over senseless carnage.” Adam Eisgrau in The New York Times.
XKCD interlude: On New Year’s resolutions.
The legacy of the Bush tax cuts, in four charts. Zachary A. Goldfarb in The Washington Post.
Another important change in immigration policy, meant to ease family separations. Julia Preston in The New York Times.
House Oversight adds energy subcommittee. Zack Colman in The Hill.
Study: New abortion restrictions dropped in 2012. Elise Viebeck in The Hill.
The fiscal cliff cuts $1.9 billion from Obamacare. Here’s how. Sarah Kliff in The Washington Post.
Al Jazeera bought Current TV. Brian Stelter in the New York Times.
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Wonkbook is produced with help from Michelle Williams.