A deal was reached to ameliorate the effects of the United States going over the so-called "fiscal cliff" on January 1, but few seem satisfied with the legislation.
The bill, dubbed the American Taxpayer Relief Act of 2012, initially passed through the Senate in the early hours of 2013 by an overwhelming 89-8 vote. It faced a less certain future in the House of Representatives, but the bill eventually overcame a Republican party split to successfully emerge from the lower chamber in a 257-167 vote.
Even the legislation's supporters framed it as a stopgap measure that did what was necessary to neutralize the cliff's automatic spending cuts and tax increases, which took effect on January 1, but did little more than that. "There's more work to do to reduce our deficits, and I'm willing to do it," said President Barack Obama. "But tonight's agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans."
According to the Congressional Budget Office (CBO), the Act will reduce the country's deficit by $737 billion, mainly due to a tax increase on individuals earning more than $400,000 a year and households earning $450,000. While the bill also makes $107 billion worth of spending cuts, Republican leaders promised substantially greater reductions in the future, while trying to shift the blame to the White House when possible. "With the revenue piece settled, Washington must now turn to solving the rest of the fiscal cliff—the out-of-control spending that has led to record debt and deficits under President Obama," said House Ways and Means Committee Chairman Dave Camp (R-MI).
"This legislation is far from perfect—it is merely a bandaid for the tremendous challenges facing our country," said Senate Finance Committee Ranking Member Orrin Hatch (R-UT). "For one, this legislation does not reduce federal spending to cut our more than $16 trillion debt. We must confront that challenge and make those difficult decisions in the coming months ahead."
From an economic perspective, the initial reaction to the bill's passage was positive, as stocks soared on the second day of the New Year. But in the longer term, much of the damage might have already been done, as the hysteria surrounding the fiscal cliff's resolution wore on the U.S. consumer."Even if the powers that be manage to cobble something together, it may be too late to shift the attitude of the consumer and it is entirely possible that there will be significant retrenchment in spending for the next few months," said NACM Economist Chris Kuehl, PhD. "In many ways the current dilemma looks like the austerity effort that has swept Europe and we all know what that has looked like. Americans do not seem ready to riot and take to the streets in protest, their reaction will be more subtle and insular—a quiet withdrawal from the process and that may prove to be more damaging to the economy than street demonstrations."
- Jacob Barron, CICP, NACM staff writer