How Obama won and lost in 'fiscal cliff' deal

President Obama would have looked incompetent if the nation had gone over the fiscal cliff. But now he faces three more cliffs early in 2013, and those could limit his scope.

On balance, President Obama came out a winner in the last-minute “fiscal cliff” deal that averted income-tax hikes on most Americans and postponed deep federal spending cuts.

Had the deal not passed Congress, both the White House and bipartisan leaders on Capitol Hill would have had egg on their faces. The public would have had cause to blame Washington for yet another self-inflicted wound that threatened to send markets into a spiral and put both the US and global economies back into recession. Republicans would have come in for bigger blame than the president, polls showed, but Mr. Obama, too, would have looked incompetent.

Instead, Obama delivered on his top reelection campaign promise: that the wealthiest taxpayers see an increase in their marginal income-tax rate in 2013. True, his definition of “wealthy” morphed significantly – from $250,000 to $450,000 in annual family income. Late Tuesday night, after the House passed the bill, Obama persisted in saying that the bill he will sign into law “raises taxes on the wealthiest 2 percent of Americans,” when in reality, it’s more like the wealthiest 0.7 percent.

But those wealthiest taxpayers will see their top rate go back to where it was during the Clinton era – from 35 percent to 39.6 percent. During the negotiations, there had been talk of setting the top rate somewhere in between.

All told, the fiscal-cliff deal produces $620 billion in deficit reduction over 10 years, a down payment on what both sides agree needs to be much more. In the cold light of day, many Republicans disappointed by the tax increase agree that the alternative – no deal – would have been worse.

“The deal to avoid going over the so-called fiscal cliff was a lousy one: tax rate increases during a weak economy, no spending reductions, nothing on entitlement reform,” writes Peter Wehner, a former Bush White House official, on Commentary Magazine online. “And yet if House Republicans had succeeded in derailing this deal, negotiated between Senator Mitch McConnell and Vice President Joe Biden, it would have been disastrous.”

But Obama’s victory is narrow. And by getting only a partial deal now, he faces a bigger fiscal cliff just a few weeks into his second term. In fact, there will be three cliffs: the deep spending cuts known as the “sequester” that come due (again) in two months; the debt ceiling, which will prohibit new federal borrowing without congressional action, also in about two months; and the expiration on March 27 of the continuing budget resolution – the short-term deal passed Oct. 27 that allows the federal government to keep spending money.

Those three anvils hanging over Washington’s head are likely to consume attention as the deadlines approach, creating a distraction from other matters Obama might want to address after his second inauguration on Jan. 21 – starting with gun violence and immigration reform.

Typically, reelected presidents begin their second terms with a bit of fresh political capital in the bank and about an 18-month window in which to accomplish anything. Fiscal matters could easily deplete Obama’s balance. And with each passing month, Congress becomes increasingly concerned about midterms – particularly House members, who face reelection every two years, and the one-third of the Senate that is up for reelection.

Immigration reform could be an exception: Republicans face a crisis in their declining Hispanic support, and the issue has shot to the top of their agenda. That, coupled with Obama’s longstanding pledge to enact comprehensive reform, could mean action, almost regardless.  

But Obama has other fiscal-cliff negatives to overcome. He may, for example, pay a price for the pep rally he held next door to the White House on Dec. 31 in an auditorium packed with middle-class taxpayers. The event was meant to demonstrate, once again, his commitment to average Americans in making sure their taxes didn’t go up at midnight that night. But it infuriated Republicans at the other end of Pennsylvania Avenue, and likely reduced any good feeling from the deal Mr. Biden cut with Senator McConnell (R) of Kentucky, the Senate minority leader.

Some analysts have suggested that Biden’s prominent role in solving the immediate fiscal cliff crisis, after Obama’s negotiations with House Speaker John Boehner came to naught, hurt Obama’s image as a leader. That may be true, but at least, it can argued, he deserves credit for his decision in 2008 to make Biden his running mate and place at his side an experienced Senate hand who could jump into the breach at just such a moment.  

It was the Biden-McConnell deal – which passed the Senate by a lopsided 89-to-8 vote early Tuesday morning – that created the momentum necessary to keep enough House members (of both parties) in line to pass the bill late Tuesday.