Leading up to New Year’s Eve, there was much ado about nothing the January 1st deadline for striking a deal on the fiscal cliff. Congress, dysfunctional and frequently misguided though they are, knew better. Yes, the economic consequences were going to be dire in the long run had a deal not been hammered out, but to hear the media talk about it, one would have thought that U.S. GDP would have been immediately decimated. In reality, the projections being passed around as disaster porn would have played out over the course of a year or longer, and Congress knew it. No, January 1st didn’t matter, and neither did those projections. Congress just needed to pass a deal prior to the markets opening today in order to prevent a -3% or greater risk off drop that would have backed them into a corner where political capital losses would have been even more steep. Fortunately for them, as the Washington Post reports, a deal was finally struck in the 11th hour:
Congress approved a plan to end Washington’s long drama over the “fiscal cliff” late Tuesday after House Republicans surrendered to President Obama’s demand to let taxes rise on the nation’s richest households.
The House voted 257 to 167 to send the measure to Obama for his signature; the vote came less than 24 hours after the Senate overwhelmingly approved the legislation.
Good news to be sure, and the markets are breathing a sigh of relief:
Source: Finviz.com. Disclaimer: past performance is not necessarily indicative of future results.
So what did this magical deal look like? The Washington Post continued (emphasis ours):
The bill will indeed shield millions of middle-class taxpayers from tax increases set to take effect this month. But it also will let rates rise on wages and investment profits for households pulling in more than $450,000 a year, marking the first time in more than two decades that a broad tax increase has been approved with GOP support.
The measure also will keep benefits flowing to 2 million unemployed workers on the verge of losing their federal checks. And it will delay for two months automatic cuts to the Pentagon and other agencies that had been set to take effect Wednesday.
In other words, the bill was, in many ways, a cop-out. Decisions were not made on the bigger issues; they were deferred. Discontent on the hill over the way negotiations played out is incredibly high. While the 113th Congress will tackle the delayed issues, much of the Congressional leadership will remain in place, and they’re in no mood to play nice. As Politico reported:
House Speaker John Boehner couldn’t hold back when he spotted Senate Majority Leader Harry Reid in the White House lobby last Friday.
It was only a few days before the nation would go over the fiscal cliff, no bipartisan agreement was in sight, and Reid had just publicly accused Boehner of running a “dictatorship” in the House and caring more about holding onto his gavel than striking a deal.
“Go f— yourself,” Boehner sniped as he pointed his finger at Reid, according to multiple sources present.
Reid, a bit startled, replied: “What are you talking about?”
Boehner repeated: “Go f— yourself.”
The harsh exchange just a few steps from the Oval Office — which Boehner later bragged about to fellow Republicans — was only one episode in nearly two months of high-stakes negotiations laced with distrust, miscommunication, false starts and yelling matches as Washington struggled to ward off $500 billion in tax hikes and spending cuts.
Happy new year? We’ll have to wait and see. Hopefully tempers won’t be running so high a month or so from now… or we could be back in the exact same spot.