This week the US Senate has passed a two-year federal budget bill by 64 votes to 36 in a rare outbreak of fiscal deal-making on Capitol Hill. The bipartisan bill aims to avert another government shutdown.
The bill does several things:
- It gives Congress until 15 January to pass a $1.012 trillion spending bill for 2014.
- It does not raise taxes.
- It rolls back $63bn in military and domestic spending cuts due to take effect in January.
- It does not extend long-term unemployment benefits that are due to expire for nearly 1.3 million Americans later this month.
- It cuts inflation increases to pensions for military retirees under the age of 62.
- It aims to reduce the federal deficit by up to $23 bn.
The passing of the Budget deal is significant for two reasons: firstly, because it deals with the issue of the fiscal cliff in America, and secondly, it signals perhaps a return of bipartisanship in Congress.
So what is the fiscal cliff?
Simply put, the fiscal cliff was a situation which came into existence in January 2013 whereby a series of previously enacted laws would simultaneously come into effect. These acts were:
- The expiration of the Bush tax cuts of 2001 (further extended for two more years in the 2010 Tax Relief Act. This is the revenue side of the fiscal cliff - i.e. how much the government collected in taxes.
- The 2011 Budget Control Act which cut public spending (referred to as budget sequestration) and extended the debt ceiling to 31 December 2012 - the same day as when the Bush tax cuts expired. . The public spending cuts were delayed until March 2013 by the American Taxpayer Relief Act of 2012.
The fiscal cliff would increase tax rates and decrease government spending. At the same time, government spending would continue to exceed its revenue.
The American Taxpayer Relief Act of 2012 addressed the first issue - revenue. The Act implemented smaller tax increases compared to the expiration of the Bush tax cuts.
So what was this debt ceiling crisis thing?
Although one part of the fiscal cliff (taxation) had been resolved, the debt ceiling remained. The debt ceiling is the limit placed by Congress on the amount of money the Federal Government can borrow. For a great (albeit fast) non-partisan explanation, see the following video by CP Grey.
Although the debt ceiling was technically reached on 31 December 2012, the Treasury took special measures to enable the government to be financed.
In 2013 the debate on what to do began in earnest. Republicans argued that the debt ceiling should not be raised unless spending was cut by an amount equal to or greater than the debt ceiling increase. Democrats have suggested raising or removing the debt ceiling altogether.
By September 2013 the measures the Treasury enacted to continue funding the Federal Government were nearly exhausted. The Treasury announced that the Federal Government would default on its debt (be unable to pay interest incurred).
That same month, Republicans in the House of Representatives drafted a bill that would postpone default by twelve months in return for a one year delay to the implementation of the Patient Protection and Affordable Care Act.
So how was it all resolved?
In October, the Senate passed the Continuing Appropriations Act, 2014, to fund the government until 15 January 2014, and suspending the debt ceiling until February 2014.
It also set up a House-Senate budget conference committee to negotiate a long-term spending agreement. It was this conference that proposed the two-year federal budget bill passed this week.
What does this all mean for Congress and levels of partisanship?
While the bill is heralded as a break from routine partisan rancour on Capitol Hill, lawmakers are cautious about forecasting a change in the climate there next year.
President Obama hailed the passage as "a good first step away from the short-sighted, crisis-driven decision-making that has only served to act as a drag on our economy."
However, rather than signalling a new turn towards greater bipartisanship in Congress, commentators suggest the act signals a temporary truce before the fight resumes over the question of raising the debt ceiling yet again next year.
President Obama hailed the passage as "a good first step away from the short-sighted, crisis-driven decision-making that has only served to act as a drag on our economy."
However, rather than signalling a new turn towards greater bipartisanship in Congress, commentators suggest the act signals a temporary truce before the fight resumes over the question of raising the debt ceiling yet again next year.
