Despite a last-minute compromise to avoid the fiscal cliff, lawmakers still have much to address.
Congress passed the American Taxpayer Relief Act in the late evening on New Years Day, narrowly avoiding a collection of automatic and steep tax increases and spending cuts that would have taken place on Jan. 1, as stipulated by the Budget Control Act of 2011, the law at the center of last year’s debt-ceiling crisis. Given the severity of these stipulations, many economists predicted that they could potentially push the already-fragile economy into another recession, earning the foreboding pseudonym “fiscal cliff” in public discourse.
The bill was the result of weeks of protracted and heated negotiation between congressional leaders, with compromise seeming to move frustratingly in and out of reach with each passing hour. As the New Years Day deadline grew increasingly close, hopes for compromise seemed to dim, with many commentators expressing serious doubt that a deal could be reached.
With a fragile economy at stake, as well as any lingering faith among their constituents, lawmakers struck an eleventh-hour deal that would raise taxes on only the top tax bracket, elevating the top marginal rate to 39.6 percent on individuals earning more than $400,000 and on families earning more than $450,000. Additionally, high-earner tax deductions and exemptions will be limited through the closures of various “loopholes” in the tax code. For other tax brackets, the Bush tax cuts were made permanent, and unemployment insurance has been extended through the end of the year.
The deal is unlikely to make either side happy, with the left having pushed for elevated taxes on those earning over $250,000 and the right pressing for a hard cap on the debt ceiling, but it was a victory for a Congress that has proven remarkably ineffective and unpopular over its two-year term.
“While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country,” President Obama was quoted as saying, shortly after the Senate vote.
For everything the bill is, however, there is just as much that it is not. Critics say the bill does little to cut spending and does not address the debt limit. Those issues have been pushed out until the end of February, affording lawmakers two months in which to address them, at which point, if no decision has been reached, the cuts stipulated by the Budget Control Act sequester will be implemented.
In a video released by Purdue University prior to the resolution of negotiations, Jerry Lynch, a professor of economics, criticized the continued willingness of Congress to delay addressing these issues, saying that employing deadlines to ensure legislation is preventing long-term solutions and hurting the economy.
“What happens when you face a deadline is that you collude something together that probably is not a good, workable, long-term solution. That’s what we did in the summer of 2011, is just put ourselves in this situation,” Lynch said. “The looming threat is already affecting the economy, it’s already slowing it down.”
The Associated Press contributed to this story.