An Analysis of the ‘Fiscal Cliff’ Deal


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New Tax Law: Net Effects

Boehner has had to deal with dissension and infighting within his own party. Credit: Darth Kalwejt (Public domain) via Wikimedia Commons

Boehner has had to deal with dissension and infighting within his own party. Credit: Darth Kalwejt

According to Congress’ Joint Committee on Taxation, the new law is estimated to raise $620 billion over the next ten years in taxes and shields approximately 99% of individuals (and 97% of businesses) from significant tax increases. The Congressional Budget Office has estimated cumulative deficits will increase by $4 trillion over the next ten years, as compared to those that would have occurred after the expiration of the Bush tax cuts. No significant spending reductions were implemented in the deal, and the current $16.4 trillion debt ceiling remains in place.

As most Americans are well aware, both sides attempted to negotiate a “grand bargain” that would include spending cuts, entitlement reforms and a debt ceiling increase in conjunction with revenue increases. However, due in large part to factions within the House of Representatives unable to agree upon a uniform strategy, the parties became hopelessly deadlocked. As a result, the plan was scuttled in favor of this agreement.

U.S. Economy: Battles to Come

As a result of the failure to achieve a “grand bargain” and subsequent partial can-kicking down the road, further battles are slated over the next several months. First and foremost, the U.S. is presently at the legislated $16.4 trillion debt ceiling. Treasury Secretary Timothy Geithner, who earlier suggested that getting rid of the debt ceiling altogether might be an option, has indicated certain maneuvers can be made to avoid default for now, but the issue must be dealt with soon. Republican stalwarts Lindsey Graham and John McCain have vowed to use the debt ceiling as leverage to exact substantial cuts in entitlements.

The second issue is the sequester, which was merely delayed for two months with the passage of the new law. The third is the expiration of the Continuing Resolution which has kept the country running despite the government’s failure to pass a budget since 2009.

Financial Conflict: Political Leverage and Philosophies

Both Republicans and Democrats believe they have hole cards in the upcoming negotiations. Republicans believe revenue increases are now done, and feel the debt ceiling is their leverage to force entitlement reform and other non-defense spending cuts to be the primary driver toward not only deficit reduction, but smaller government as a whole. By contrast, as the overall winners of the 2012 elections, Democrats picked up seats in both houses of Congress and believe they have  a mandate toward a “balanced” approach to deficit reduction — not to mention public opinion firmly on their side.

John McCain has already declared war with respect to the debt ceiling. Credit: By Dan Raustadt via Wikimedia Commons

John McCain has already declared war with respect to the debt ceiling. Credit: By Dan Raustadt

Gamesmanship, brinksmanship, and intransigence, ad infinitum. Buddha’s dust is probably spinning in its grave.


CCH. President Signs Eleventh-Hour Agreement To Avert Fiscal Cliff(2013). Accessed on January 6, 2013.

Society of Nuclear Medicine and Molecular Imaging. American Taxpayer Relief Act Passes, Includes Imaging as Pay-for. (2013). Accessed on January 6, 2013.

Ropes & Gray LLP. Highlights of the American Taxpayer Relief Act of 2012 (2013). JD Supra Law. Accessed on January 6, 2013.

Garofalo, Pat. The Fiscal Cliff Deal, By The Numbers (2013). Think Progress. Accessed on January 6, 2013.

Rugaber, Christopher. Debt Limit Reached, U.S. Moving To Avoid Default: Timothy Geithner(2012). The Huffington Post. Accessed on January 6, 2013.

Barbieri, Rich. 3 more fiscal cliffs loom. (2013). CNN. Accessed on January 6, 2013.

PolitiFact. Bob Corker says Senate has not passed a budget in more than three years(2012). Accessed on January 6, 2013.

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