Fiscal Cliff: Washington clears economic hurdle

President Obama appears to be on a roll. Fresh off his re-election, the White House helped broker a last-minute New Year's Day deal with the Senate to keep the federal government from going over the Fiscal Cliff and jolting the fragile U.S. economy. /AP image via politico.com


There are other economic hurdles ahead for Washington in 2013, including a vote in Congress on surpassing the government's $16.4 trillion debt ceiling and crafting a federal budget, but the Obama administration has started its second term with a strong step forward. The Fiscal Cliff deal approved in the Senate on New Year's Day then the House on New Year's Night drew many Democratic and Republican votes.

From a political perspective, President Obama is looking more and more like a worst-case scenario for Republicans: a two-term Democrat who adeptly guides the country through an economic crisis and two wars. Obama has momentum from his re-election and the Fiscal Cliff deal, and he will have slightly higher Democratic numbers in the Senate and House when the new Congress is seated Thursday.

From an economic perspective, the New Year's Day Fiscal Cliff deal is not a long-term solution to the U.S. government's deficit spending problem. It's being welcomed on Wall Street, with the Dow up 220 points in midday trading, but drawing tepid reviews on the OP-ED pages:

Wall Street Journal
"Congressional Republicans are seething over President Obama's repeated declarations that the higher taxes on the rich in the fiscal cliff bill will be followed by more tax increases later this year.
"House and Senate Republicans are nearly unanimous in saying they will not budge on further tax hikes going forward, despite Mr. Obama again stating last night that America can't solve the debt problem 'with spending cuts alone' and that 'tax reform' — the new code words for raising taxes — is needed."

The Washington Post
"The compromise bill passed by Congress to avert the worst effects of the 'fiscal cliff' is a small, imperfect package that will do too little to address the nation’s long-term debt problem. But for all its weaknesses, the bill’s enactment is far better than a failure by this Congress to act before it adjourns Thursday.
"Most important, the deal will delay the ill-targeted and unwise spending cuts known as sequestration and cancel sharp tax increases for most Americans. In the process, it will also make some worthwhile reforms."

USA Today
"The deal passed by Congress Tuesday night to avoid the 'fiscal cliff' is an ugly little contraption — a meager New Year's nip at staggering debt and deficit problems. It trims $650 billion compared with the big $4.6 trillion bite that would have come from simply doing nothing and letting cliff-triggered tax increases and spending cuts kick in.
"All the same, passing it was the right thing to do — mostly because a year of unproductive squabbling left it as the only option that could be passed in time. No one involved sees it as a final answer. It is, instead, a stop-gap aimed at avoiding the economic risk and human misery that going over the cliff would bring."