What's not in the deal is just as important: payroll taxes, spending cuts, and the debt limit. The payroll tax holiday is officially over. That means payroll taxes will rise by 2 percentage points on all workers. There are no spending cuts in the fiscal cliff deal. But there is also no guarantee to raise the debt limit, in the next two months. Republicans want to use the debt limit debate for force spending cuts. President Obama has repeatedly promised not to negotiate over the debt limit, since failing to raise it could trigger a financial crisis.
What's the best reason for us to like it?
Deficits won't kill the U.S. economy in 2013. But austerity might. In a weak economy, we want taxes low and short-term deficits high. This deal preserves both.
Don't think of the U.S. as having "a deficit crisis." That's too simple. Think of us as having three deficit challenges. In the short term, we need high deficits to support weak growth. In the medium term, we need higher revenue and slightly less spending. In the long term, we need to make health care more affordable -- not just for the government, but for everybody.
This deal doesn't fix our health care problem, but that's a multi-decade problem that we don't have to "fix" (as if we even could) in January 2013. This deal doesn't raise taxes as much as we ultimately need to, nor does it touch spending, but that's okay for now, because those are medium-term goals. In the short term, we need more jobs, more spending, more economic activity, especially around housing. High deficits can't save an economy. But austerity can strangle it.
What's the best reason to hate it?
The fiscal cliff was a triple-whammy: taxes, spending, and the debt limit. This deal resolves the first, and most pressing issue, which was the threat of rising taxes on every family in a weak economy. But the deal doesn't solve the other two whammies: the automatic spending cuts passed in the Budget Control Act of 2011 (aka: the sequester) and the debt ceiling. We punted both of those debates by two months.
The Media Metaphor Committee hasn't yet settled on a scary-and-not-even-really-accurate topographical analogy for these debates, but ... I don't know, Budget Mountain? Debt Valley? I'll get back to you tomorrow. The upshot is that the era of perpetual crisis in Washington is far from over.
I heard that this bill increases our deficits by $3.9 trillion in the next ten years. Is that true?
Sort of, but that's really the wrong way to think about it.
fiscal cliff deal raises taxes by about $600 billion in the next ten
years compared to an extension of 2012 tax policy. But if Congress had
done nothing to avert the fiscal cliff, the Bush/Obama tax cuts would
have expired and taxes would have gone up on everybody dramatically,
sucking the economy into a short, sharp recession. Compared to that tax hike, this deal reduces revenue (or increases the deficit) by nearly $4
trillion. So the folks saying this deal increases the deficit by $4
trillion are sort of right. But they're comparing this deal to an
alternate reality that was always utterly inconceivable.