Republicans are flagellating themselves after having agreed to a fiscal cliff deal on Tuesday night that averts income-tax hikes on every American—hitting only individuals making more than $400,000—and pushes back for two months the $110 billion in automatic spending cuts known as sequestration. Their main complaints? They voted for a tax increase (even though some claimed it was technically a tax cut) and they didn’t win any concessions on spending cuts. In fact, relative to going over the cliff, the Joint Committee on Taxation found that the deal increases the deficit by $3.915 trillion dollars. Meanwhile, Democrats are crowing for much the same reason.
Both sides need to gain some perspective. By any objective historical measure, the deal is a good one for Republicans: It locks in virtually all the Bush-era income tax cuts, establishes a generous-to-the-wealthy inheritance tax, and maintains low capital gains and dividend taxes. It also raises a lot less revenue—$600 billion—than Democrats would have gotten by going over the cliff for good ($4 trillion) or resetting the income-tax threshold at $250,000 ($830 billion), as Obama had vowed to do.
Democrats didn’t fare quite as badly as it seemed they might over the weekend. In exchange for all they gave up, they got a full year’s extension of unemployment benefits and extended many stimulus tax credits by five years. They also “decoupled” the Bush tax cuts for the rich and middle class, thereby establishing the precedent that the rich should carry a heavier share of the tax burden.
But Obama characteristically chose the risk-averse path of not going over the cliff and settling for less than he otherwise might have gotten. In doing so, he gave up his greatest point of leverage and let Republicans hang onto their own: the need to raise the $16.4 trillion debt limit by late February or early March. What’s most worrisome about the deal is that it sets up a huge, three-part showdown two months from now—when the debt limit is reached, the continuing resolution to fund the government expires, and the sequestration is due to kick in.
Republicans are insisting that they’ll use this leverage to force the deep cuts in entitlement programs they didn’t get this time. Obama repeated Tuesday night that he would not negotiate over the debt ceiling. That proposition is sure to be tested, since Obama has made similar vows in the past—on the debt ceiling, on the income-tax threshold—and has conceded every time.