Fiscal cliff averted, now wait for the next crisis

If the fiscal cliff fight was bitter -- the next boiling skirmishes between the Democratic president and scorched earth Republicans could be worse

The US Capitol in Washington, DC, on January 2, 2013, on the day after a compromise bill passed the US Congress, avoiding the "fiscal cliff." The agreement raises taxes on the rich and puts off automatic $109 billion federal budget cuts for two months. AFP PHOTO / Saul LOEB

WASHINGTON DC, USA – Barack Obama should savor his flight home to Hawaii because his fiscal cliff victory was but one battle in an economic war of attrition with Republicans that is certain to get even more vitriolic.

On deck now are feuds over lifting the US debt ceiling, funding government operations and over the delayed $109 billion spending broadside that was dodged in the fiscal cliff compromise.

After chaos remarkable even for Washington, the House of Representatives voted late Tuesday, January 1, to raise tax rates on the rich but to spare the middle class in the other half of the deal.

The graying president could barely wait to skip aboard Air Force One to resume his interrupted vacation — but before he left, made a plea that seemed redundant almost as soon as it left his lips.

“Hopefully, in the New Year, (what) we’ll focus on is seeing if we can put a package like this together with a little bit less drama, a little less brinksmanship, not scare the heck out of folks quite as much.”

If the fiscal cliff fight was bitter — the next boiling skirmishes between the Democratic president and scorched earth Republicans could be worse.

In a stop-gap compromise, Obama and Republicans formed a new series of cliffs, or canyons or whatever pundits call the next crisis.

By delaying spending cuts known as the sequester for two months, they merely postponed a fight on an issue fundamental to the political DNA of each side.

The spending questions will be no easier in February than December.

“When pressed to the limit, political leaders averted some of the most immediate negative consequences of the short-term fiscal cliff,” said the Business Roundtable in a statement on Wednesday, January 2.

But the coalition of chief executives warned the deal “left unaddressed the most serious and fundamental reforms required for the country’s long-term economic health.”

Twice now, Obama and House Speaker John Boehner have reached for and failed to grasp a grand bargain to reduce the deficit, which clouds future US economic prospects with its annual $1 trillion price tag.

As a result, threadbare trust between the two men has frayed further and it seems neither can shift their political coalitions sufficiently to frame legacy-enhancing compromises.

Obama and Boehner will next clash over lifting the US government’s $16 trillion borrowing limit, known as the debt ceiling, reached on Monday, December 31, as the Treasury is forced into extraordinary measures to keep paying the bills.

Republicans believe the debt ceiling fight gives them an opening to demand the big cuts to social welfare programs they failed to insert in the fiscal cliff deal.

Boehner has yet to specifically link the debt ceiling to spending cuts, but under pressure from his caucus, wants to wield the knife hard.

“Without meaningful reform of entitlements, real spending controls, and a fairer, cleaner tax code, our debt will continue to grow, and our economy will continue to stumble,” he said.

Republican gunslinger John McCain was more direct.

“I think there is going to be a pretty big showdown next time when we go to the debt limit,” the Arizona senator told CNN.

The White House is wary of repeating the chaos sparked by the last debt ceiling fight in 2011, which convinced many investors that the US political system simply does not have the capacity to fix what ails the economy.

“While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed,” Obama said Tuesday.

“If Congress refuses to give the United States government the ability to pay these bills on time, the consequences for the entire global economy would be catastrophic, far worse than the impact of a fiscal cliff.”

It is unclear however how Obama will be able to resist Republican demands for spending cuts in return for lifting the debt ceiling — other than to dare them to throw the world’s most powerful nation into debt default.

That would threaten deep damage to the global economy and could throw America into a recession that could ruin Obama’s second term.

Another brewing fight over budget financing that expires on March 27 could lead to a government shutdown if there is no resolution.

“We’re going to have to deal with the debt ceiling, we’re going to have to deal with the continuing resolution, and we’re going to have to deal with the sequester,” Democratic lawmaker Jim Moran said Tuesday.

“We’re going to look back on this night and regret it.”

But as they contemplate skirmishes to come, Obama’s staff claims a consequential political victory, after breaking two-decades-old Republican dogma against raising tax rates to find $620 billion in new revenue.

People familiar with Obama’s plans believe that the fact he did not bow to Republican demands to find new revenues by closing tax loopholes rather than raising rates is significant and gives him ammunition for new tax fights. –

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