So: From a progressive perspective, was this fiscal cliff deal a good one? The short answer is: It depends on what happens now.
First, let’s back up a step and ask, what constitutes a good fiscal deal these days?
For some progressives, the answer might be: A good deal is one that raises ample government revenue to do the things we need the government to do, including invest in public goods, provide social insurance, support the safety net, and provide a fair opportunity set for the least well-off.
By that criterion, the deal isn’t great, but it’s a step in the right direction. Unlike earlier offers from the president, this deal contained no cuts in Medicare or Social Security. It raises about $600 billion (over 10 years) in revenue from tax increases on high-income households, and it extends unemployment benefits for another year and refundable tax credits targeted at low-income households for another five. The boneheaded, across-the-board spending cuts were suspended for a couple of months, giving Congress time to avert them altogether.
On the other hand, the payroll tax break that added 2% to workers’ paychecks expires and the revenue numbers comes in a bit light relative to what many of us were expecting, because Obama agreed to raise the threshold at which the higher rates start, from $250,000 to $450,000.
For others—and I’d put myself in this camp—that first criterion above (amply funded government) is essential, but it must be joined by the goal of stabilizing the debt, which in economic terms means it starts growing slower than GDP (when the growth of the debt exceeds that of GDP, the debt/GDP ratio rises, and that ultimately is unsustainable).
In this regard, the plan is incomplete, and there are challenging questions about what comes next.
We need about another $1.2 trillion to stabilize the debt/GDP ratio over the next decade. The president believes that these deficit savings should come equally from higher tax revenues and spending cuts. The Republicans maintain that they may have been jammed into accepting some tax increases in the cliff deal, when Obama had the leverage. But that’s over now and they’re awfully intent on getting out of the tax increase business.
This all starts coming to a head very soon. In March, the Congress and the president have to deal with the rest of the sequester (there’s still about $80 billion of spending cuts in that pipeline) and the debt ceiling. Republicans are already talking about extracting massive spending cuts in exchange for agreeing to raise the debt ceiling. Essentially, they’re threatening to default on the nation’s debt—something that could have dire economic consequences—if they don’t get a dollar in spending cuts for each dollar the ceiling is raised (the so-called Boehner rule).
This must not stand. Progressives must recognize that to meet the Boehner rule is to undermine all of the functions on the list above regarding social insurance, investment, the safety net, and so on. In short, the fiscal cliff plan represents a relatively small, incomplete step in the right direction. But unless the president is absolutely firm in his contention not to negotiate with Republicans on the debt ceiling and to balance any further deficit savings between spending cuts and tax increases, that step, and the leverage that enabled it, will have been wasted.