The Dysfunctional Origins Of The Fiscal Cliff Fiasco

If the end of the 112th Congress differed in any operational way from the rest of the 112th Congress it was that the closing showmanship oversold the consequences of inaction.

The New Year’s drama had all the trappings of a typical 112th Congress cliffhanger — up to and including a final pre-midnight vote denouement — but this time around the deadline that was supposedly driving the action had actually passed without consequence. The mess, such as it was, could’ve been cleaned up in the days and weeks ahead.

So the theatrics were partly self-imposed.

But in every other sense, the fiscal cliff saga was a microcosm of the two years that preceded it. And appropriately it was a direct consequence of the dysfunctional plot points that defined the whole Congress.The blundering and ad hoc legislating which lead to Tuesday night’s denouement actually began at the end of the 111th Congress, when, after a bruising midterm election defeat, President Obama agreed to extend all of the expiring Bush tax cuts for two years. In exchange, Republicans agreed to economic stimulus measures — a payroll tax cut, emergency unemployment benefits — without which Obama might have been defeated in 2012, but which themselves became wedges of the fiscal cliff itself.

That agreement was announced just before Republicans took over the House of Representatives and by no coincidence it was the least clumsy chapter in the fiscal cliff saga. But it was the precursor to the serial brinksmanship that defined the 112th Congress: the government shutdown fights; the disaster relief debacles; the payroll tax cut drama; and, above all, the struggle to raise the national debt limit.

The sad legacy of the debt limit fight is still evolving, and won’t be fully written until later this year, when Congress has to increase it once again. But the 2011 deal that narrowly averted a self-inflicted financial crisis precipitated the second biggest wedge of the fiscal cliff.

Because House Republicans concocted the “Boehner rule” — an arbitrary requirement that Congress match every dollar of newly authorized borrowing authority with equal cuts to federal spending — and because Obama insisted that the debt limit issue be taken off the table until after the election, the law that resolved the debt limit fight would have to cut federal spending by over $2 trillion.

It was a shakedown. But As the deadline approached, Republicans recognized that if they insisted on banking all of their demands up front, they would drive the country into default. So they agreed to bank half — $1 trillion in cuts over 10 years to annual federal spending — and then task an unusually powerful, bipartisan congressional committee to come up with the rest. The backup plan in case the committee gridlocked was the sequester — a messy mix of across the board cuts to domestic and defense programs meant to force Democrats and Republicans to reach a broad budget agreement by the end of 2012.

The Super Committee famously failed to reach an agreement. Sequestration became the default option, and the fiscal cliff took fuller shape.

By then, the 2012 campaign was in full swing. Members of both parties — including senior Democrats and Republicans — nevertheless undertook efforts to replace the fiscal cliff with more considered tax and spending measures. But Republican leaders remained resolute in their opposition to raising significant new tax revenues, and it quickly became clear that the results of the election would determine whether and how Congress would prevent dangerous austerity measures from taking effect automatically.

Thus, the fiscal cliff fight. Obama won in November, on a platform premised on the idea that marginal taxes on high earners should revert to their Clinton era levels. The looming expiration of the Bush tax cuts more or less guaranteed he could pocket that goal. The question was how.

Obama and House Speaker John Boehner re-entered the budget negotiations they’d abandoned in 2011, with the balance of power now flipped in the President’s favor. Their discussions were more or less predicated on the idea that Obama had already banked $800 billion in tax revenue from high earners — roughly the amount the Treasury would have collected over 10 years by allowing the Bush tax cuts on income above $250,000 to expire. Above and beyond that, the two leaders weighed additional tax increases and spending cuts. But when details leaked and it became clear that a majority of House Republicans would reject the plan, and perhaps depose Boehner, the speaker abandoned the talks, tried to flip the script with a new approach — the infamous Plan B which collapsed without a vote.

Ironically, the final fiscal cliff deal also alienated a majority of Republicans — by a wide margin — because it lacked the spending cuts House Republicans would have pocketed if only they’d been willing to support an Obama-Boehner deal.

Instead Boehner kicked fiscal cliff negotiations over to the Senate, where leaders negotiated downward from Obama’s $800 billion baseline. When those negotiations also collapsed, Senate Minority Leader Mitch McConnell turned to Vice President Joe Biden, with whom he ultimately crafted the American Taxpayer Relief Act, which passed the Senate at about 2 a.m. on January 1, 2013 — two hours after the Bush tax cuts had expired.

After the sun rose that day, unhappy House Republicans took stock of their options — and nearly killed the bill. But cooler heads prevailed. Forced to choose between unity of party and avoiding the cliff — between his Republican legacy and his national legacy — Boehner sacrificed the former.

The bill passed 257-167 at about 11 p.m. on New Year’s Day; 151 Republicans voted against it.

After the last two years, and given the intervening election, common sense suggested that the era of governing by crisis would be set aside, perhaps temporarily. But the fiscal cliff bill sets up a brand new, and in many ways more severe crisis in two months, when the debt limit once will have to be increased and the sequester — still in effect, though paid down until the end of February — will need to be addressed again.