Congress was able to eke out a deal to pull the country back from the “fiscal cliff” last night, but likely teed itself up for an even bigger fight in two months over the debt ceiling.
The plan that passed will raise $620 billion in revenue over 10 years and pay down the sequester for two months. It only got 85 votes from House Republicans, with 151 voting against it. Rep. Paul Ryan, R-Wis., was one of the more notable yes votes, though House Majority Leader Eric Cantor, R-Va., and House Majority Whip Kevin McCarthy, R-Calif., both voted against it.
And though the deal pulls the country back from painful fiscal cliff cuts, it’s only temporary. The sequester is paid down for two months, not-so-coincidentally timed with when the government will reach its spending limit and Congress will have to vote to raise the debt ceiling.
From the AP:
It took weekend talks between McConnell and Biden, former Senate colleagues, to craft the more modest package that focused on averting the worst impacts of the fiscal cliff while postponing any deficit reduction efforts to coming months.
Those first showdowns will come over the next three months, when the government’s legal ability to borrow money will expire and temporary financing for federal agency budgets will expire. Republicans have already said that, as they did in 2011, they will demand spending cuts as a condition for extending the debt ceiling.In a statement after the vote, Boehner said that ”Now the focus turns to spending” and that Republicans will push for “significant spending cuts and reforms to the entitlement programs that are driving our country deeper and deeper into debt.”
President Obama insisted that he would “not have another debate with this Congress” over raising the debt ceiling. ”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,” Obama said.
The Washington Post lays out the potential effects of failing to raise the debt ceiling:
In many ways, the threat of default in two months is a more serious risk than the Jan. 1 fiscal cliff deadline. If Congress does not increase the debt ceiling, the government will quickly run out of ways to pay the nation’s bills and make interest payments on the nation’s outstanding debt. Any failure by the government to meet its financial obligations could be seen as a default, shaking world financial markets, given the special role that U.S. government bonds play in the global economy.
And while a default would be all but certain to push the economy into recession, growth is likely to be slow — and job-market improvement slight — even without such a cataclysmic event. The unemployment rate, which stands at 7.7 percent, is not expected to fall below 7.4 percent by the end of this year, and not below 6 percent until at least 2016 or later.