Congress came within sight of the so-called "fiscal cliff" and blinked as the New Year dawned. The Senate overwhelmingly approved legislation that averted a tax hike for millions of middle-class Americans and the House grudgingly followed suit.
The good news is that Democrats and Republicans apparently can compromise when their backs are pushed to the wall. The bad news is that many of the fiscal challenges confronting Congress haven't been resolved at all, but merely kicked down the road, which appears to be Washington's preferred option in dealing with serious problems.
While President Barack Obama and the Democrats can say they delivered on their promise to maintain a tax break for the middle class -- although it is difficult, by any standard, to describe someone earning $450,000 per year as middle class -- and Republicans can be spared the political fallout that would have resulted had tax rates increased across the board, much was left undone. The massive cuts in spending for defense and domestic programs that would have been triggered automatically have merely been deferred for two months and the federal debt ceiling again looms as a potential crisis.
Nothing has been done to make any significant reductions to the deficit. According to the Congressional Budget Office, the legislation will add nearly $4 trillion to federal deficits over the next decade compared with what would have happened had all the tax cuts expired.
The "compromise" reached by Congress will boost tax rates for the wealthiest of Americans from 35 percent to 39.6 percent; taxes also will increase on income from dividends, capital gains and inheritance. While that apparently signals an end to the "no new taxes" mantra that has been gospel for most politicians for more than a decade, there appears to be little resolve to tackle overall spending, despite political lip service to debt reduction. As David Brooks of the New York Times put it, "Many voters have decided they like spending a lot on themselves and pushing costs onto their children and grandchildren."
We put the cost of two wars on a national credit card, and the bill is coming due 10 years after our involvement in Afghanistan and Iraq began. Entitlement spending continues to spiral, but Social Security and Medicare remain the political third rail -- untouchable at high risk of political peril. Defense spending also remains a sacred cow, despite the fact that a serious case could be made for a reduction in military spending as our wartime footing diminishes. While many in Washington talk about the need for cutting the budget, precious few have the will to follow through on it.
The president essentially declared victory Tuesday night and flew back to his vacation in Hawaii. Congressional leaders on both sides of the aisle congratulated themselves for averting fiscal mayhem. Millions of Americans won't see their taxes go up. Renewed recession has been averted.
But all isn't well. Another fight over the debt ceiling is likely within a few months, bringing with it talk of government shutdowns and default. The last time that happened, in 2011, Republicans demanded spending cuts as a condition for extending the debt ceiling -- creating the fiscal cliff Congress faced on New Year's Day. The so-called solution could end up coming full circle. And meanwhile the deficit continues to mount.