After a ‘fiscal cliff’ deal, what next?

After a ‘fiscal cliff’ deal, what next?

By , Published: December 31 | Updated: Wednesday, January 2, 1:16 PM

The “fiscal cliff” was designed by Washington for Washington — it was intended to set up a scenario so severe that the president and Congress would, at last, have to take on the nation’s major tax and spending problems. Instead, lawmakers again found a way to sidestep many of the prickliest issues and in the process set up other, potentially more severe, showdowns in the new year.

The Senate approved a deal with the White House early Tuesday morning that would spare the middle class from an income tax increase, extending tax breaks first enacted under President George W. Bush for individuals making less than $400,000 and couples making less than $450,000.

It would also delay for two months the deep automatic spending cuts that were set to hit the military and domestic programs Wednesday.

Assuming the deal is approved by the House, it will nevertheless give way to a nearly continuous series of fights that will consume the first part of the year, even as President Obama might hope to shift Congress’s attention to immigration reform and gun control.

“It’s become less like a fiscal cliffhanger and more like a journey over the fiscal mountains,” said Rep. Jeff Fortenberry (R-Neb.).

The next big deadline is likely to come around the end of February, when the Treasury Department will exhaust the measures now in place to extend the nation’s $16.4 trillion debt ceiling. At that point, the government will not be able to pay its bills unless Congress votes to raise the nation’s legal borrowing limit.

Republicans hope to use that moment to force Obama and congressional Democrats to agree to major spending cuts in return for the increase — in what could be a sequel to the contentious face-off over the debt limit in the summer of 2011.

Provided Monday’s deal is approved, in early March would come another deadline: the $110 billion cut in spending, half from the Pentagon, delayed as part of this deal.

A month or so later — on March 27 — a short-term measure that funds government agencies will lapse. Without a renewal, the government will shut down, setting up another possible showdown.

“Round two’s coming,” said Sen. Lindsey O. Graham (R-S.C.). “And we’re going to have one hell of a contest about the direction and the vision of this country.”

Many Republicans believe they’ll have more leverage then than they do now because the debate over tax rates on the wealthy will be settled.

In their view, Obama has been wielding a powerful rhetorical weapon: that Congressional Republicans were blocking a deficit-reduction deal and preventing tax cuts for the middle class because they refused to allow taxes to rise for the wealthy. But the deal reached late Monday, which allows rates to rise for individuals making more than $400,000 a year and couples earning more than $450,000, would remove the issue from discussion.

Republicans figure that will tilt the debate toward spending cuts.

Graham said he anticipates forcing Democrats to give in on a long list of the GOP’s top spending priorities in the new year: raising the eligibility age for Medicare, increasing premiums for its wealthier beneficiaries, and trimming Social Security benefits by using a new method to calculate inflation.

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