In The Hobbit: An Unexpected Journey, there’s a scene where Gandalf the wizard and a band of dwarves, caught high up a tree, dangle over the edge of a cliff, hanging by beards and branches as vicious Wargs circle below. (SPOILER ALERT: Giant eagles come to the rescue.) Which brings to mind the federal government’s financial situation—and that of all Americans with it—hanging over the Fiscal Cliff at year’s end. Anyone hoping for the political equivalent of fantastic savior eagles arriving in the nick of time is surely disappointed. The political leadership of the United States—President Obama and Congress—has stepped back from the cliff, barely averting an immediate crisis that was scripted to kick in on January 1. But in a huff of bipartisanship and melodramatic brinksmanship, Washington politicians basically did what a screenwriter facing writer’s block might do: start work on the sequel.
Obama and congressional leaders reached a bipartisan deal, of a sort, that begins to address aspects of the federal government’s fiscal problems, mostly by raising revenue rather than cutting spending. Taxes will increase for the richest citizens, and capital gains tax rates will go up by one-third. The temporary payroll tax relief that many workers have enjoyed since 2011 is ended, but long-term unemployment insurance for out-of-work Americans will continue. At the same time, a potential tax hike on 98 percent of Americans won’t happen. And automatic budget cuts that were agreed to 17 months ago (often referred to as the sequester) have been postponed for two months.
However, Fiscal Cliff 2 and Fiscal Cliff 3 (and maybe 4) are all “in production.” The president and the new (113th) Congress will face renewed debate over the debt ceiling almost immediately. They will also have to resolve the matter of the sequester, which the new deal merely delays. Moreover, the federal government still is not operating on the basis of an actual budget, so another continuing resolution must be passed before late March to avoid a temporary government shutdown.
Credit: © Colin Anderson/Getty Images
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