Following the end of an unusual New Year’s Day on Capitol Hill that saw more political gridlock over the widely covered fiscal showdown over whether Congress should approve a freshly approved Senate “fiscal cliff” compromise, approved in the Senate only twenty-two hours earlier, House lawmakers voted in the late hours of the night to approve the Senate budget deal, narrowly averting a tidal wave of tax hikes and spending cuts that reached over $600 billion dollars and had the potential to submerge the U.S. in yet another recession.
The final vote count in Congress was 257 to 167 with a total of 151 Republicans and 16 Democrats voting to reject it. The legislation will now move to the White House where President Obama is widely expected to sign it.
Earlier in the afternoon, House Republicans were seriously considering the option of attaching $330 billion in extra spending cuts over 10 years to the newly approved Senate bill, which raises taxes on the wealthiest Americans by $620 billion over 10 years.
Some of the inspiration to enact new last minute spending cuts by House Republicans came after the Congressional Budget Office (CBO) announced on Tuesday that the Senate approved deal to avoid the “fiscal cliff” will actually add $4 trillion to the federal deficit over the next decade.
Marketwatch covered the story earlier on Tuesday.
However, the Republican-led spending cut proposal was pushed back just ahead of Tuesday’s last minute vote.
President Obama held a press conference shortly after the fiscal budget was approved in Congress and acknowledged that the scaled-back budget compromise was a small achievement while still emphasizing that more work is needed to be done to reduce the federal deficit.
“But I think we all recognize this law is just one step in the broader effort to strengthen our economy and broaden opportunity for everybody. The fact is the deficit is still too high and we are still investing too little in the things that we need for the economy to grow as fast as it should” he said.
President Obama explained that he and House Speaker Boehner originally tried to negotiate a larger fiscal agreement that would put this country on a path to paying down its debt and help to invest in the American economy while putting American back to work.
“Unfortunately there just wasn’t enough support or time for that kind of large agreement in a lame duck session of Congress and that failure comes with a cost” he added.
Obama highlighted that we are continuing to chip away at the problem “step by step.”
“Last year I signed into law $1.7 trillion in deficit reductions. Tonight’s agreement further reduces the deficit by raising $620 billion in revenue from the wealthiest households in America and there will be more deficit reductions as Congress decides what to do about the automatic spending cuts that we have now delayed for two months” Obama said.
The delayed spending cuts that President Obama referenced during Tuesday’s press conference is the $110 billion in “across the board” sequestered cuts, supposedly divided “evenly” between defense related and entitlement cuts that are expected to start on March 1st, 2013.
The sequestered cuts if spread out over a 10 year period amounts to $1.2 trillion dollars in federal budget cuts.
Obama said that he is aware that Medicare represents the biggest contributor to the deficit and that more health care reform is needed while America is aging and health care costs continue to rise.
However, he drew a line in the sand and said that “we can’t simply cut our way to prosperity” while pointing out that “the deficit needs to be reduced in a way that is balanced.”
Obama emphasized that cutting spending goes “hand in hand with further reforms for the tax code” and “we can’t keep cutting things like basic research and new technology and expect to succeed in the 21st century.”
Another potential fiscal issue that clearly has the potential to resurface again in only two months revolves around the federal debt ceiling.
Not Open To Compromise
Obama made it clear during his press conference that he does not want have another fiscal showdown with Congress over the debt ceiling in another two months.
“I will not have another debate with this Congress over whether or not they should pay the bills that they have already racked up” he said.
The U.S. government reached the debt limit on January 1st and Treasury Secretary Timothy Geithner has already begun to adopt “extraordinary measures” to finance about $200 billion in 2013 to temporarily hold back the $16.4 trillion debt ceiling for two more months.
In 2011, Congress reluctantly agreed to raise the debt ceiling limit to $16.4 trillion from $14.3 trillion amid a lot of political wrangling between the White House, House Republicans, and Senate Democrats that resulted in a credit downgrade by Standard & Poor’s.
House Republicans managed to force Senate Democrats and the White House to accept over $1 trillion in spending cuts in addition to $1.2 trillion in sequester cuts that will begin on March 1st 2013.
* Correction: my last post from Tuesday (yesterday) incorrectly listed Kentucky Republican Rand Paul (R-Kentucky) in reverse as Paul Rand before the mistake was discovered and corrected.