U.S. President Barack Obama has snapped America back from the “fiscal cliff” with a bungee cord, after briefly toppling over. For that, Canadians and the rest of the world ought to be grateful. Even so, the tax and spending pact he pushed through Congress after months of tedious histrionics and brinksmanship is a feeble compromise that doesn’t begin to address Washington’s chronic failure to raise the cash it needs to fund the programs the country needs.
Granted, the hard-fought deal does avert $ 600 billion in unwise near-term tax hikes and spending cuts that could have plunged the weak U.S. economy back into recession, and dealt the global economy an unwanted blow. It averts the onset of too much austerity, too rapidly, in dealing with the mess created by George W. Bush’s profligate tax cuts of a decade ago. Given Republican obduracy on tax increases and some Democratic fecklessness, it may be the best the White House could wring from a dysfunctional, dying Congress.
Obama hailed the deal as the “right thing” for the nation. But at root it settles little, punting Washington’s near-term fiscal woes forward two months to the point when it hits the current $ 16.4-trillion debt ceiling, and dodging the painful choices that will be needed to balance the books longer-term. It is “part medicinal, part placebo and part treating the symptoms but not the underlying pathology,” as Republican Rep. Trey Gowdy rightly observed. That makes it hard to be enthusiastic, especially with a potentially worse crisis looming.
That said, Obama and the Democratic leadership deserve credit for strong-arming Congress into raising income taxes on the very richest, including individuals earning more than $ 400,000 a year, while wisely protecting programs that help low-income working families and the jobless. That’s a breakthrough. For the past decade the Republican mantra has been that cutting spending was the only way to curb the deficit. But even here, Obama was forced to shelve his goal of making $ 200,000-plus earners bear more of the burden. The tax equity battle has yet to be fought.
Nor did middle-income Americans entirely dodge the tax bullet. A $ 50,000 middle-income earner faces $ 700 in extra payroll taxes. That’s the better part of a mortgage payment. It’s also a sign of the pain that lies ahead.
Yet even though the Obama administration expects to raise more than $ 600 billion over a decade through this deal while denying Republicans the punishing program cuts they sought, the federal deficit will still jump by nearly $ 4 trillion in that time. That’s how far Congress remains from anything like a cross-party “grand bargain” to tame the public’s thirst for over-spending.
Going forward, Obama has warned the Republicans that he will insist that revenue increases must match spending cuts. Certainly, a balanced, carefully staged approach is best. And there’s room to increase the share that the top 20 per cent of Americans, those making more than $ 250,000 a year, pay. Obama is right to set that as a target. But this weak “fiscal cliff” deal, which still favours the wealthiest, shows how far he remains from putting his principles into action.