(CBSNews.com) - Congress didn't completely fall off the "fiscal cliff," but they're still hanging onto the edge.
By waiting until the last minute to scrape together a limited bill (which extends the Bush-era tax rates for most Americans and extends long-term unemployment insurance, among other things), Congress sidelined some major fiscal issues they initially sought to resolve before the new year.
Leaders in Washington deferred for two months the $1.2 trillion in across-the-board spending cuts (known as "sequestration") set to hit the Pentagon and domestic programs this week. Additionally, the bill passed this week failed to raise the debt ceiling, even though the Treasury technically hit the $16.4 trillion limit Monday. Both of these issues will come to a head just as Congress is expected to vote on a new federal budget. The convergence of these issues practically guarantees that within a matter of weeks, Washington will once again find itself embroiled in another fiscal crisis.
Lawmakers on both sides of the aisle in recent days have decried the state of uncertainty that's lingered over Washington for months: "We all know uncertainty is the enemy of prosperity," Rep. David Dreier, R-Calif., said on the House floor Tuesday evening. Congress this week did manage to erase fears that the middle class would face an income tax increase. Still, the next "fiscal cliff" not only keeps the threat of a government shutdown on the horizon, but it is also sure to revive seemingly intractable fights over government spending and programs like Social Security and Medicare.
In remarks Tuesday night, President Obama said Washington should strive to address these remaining fiscal issues "with a little bit less drama, a little less brinksmanship, [so as to] not scare the heck out of folks quite as much."
How'd we get here?
Congress enacted the $1.2 trillion "sequester" cuts because of the 2011 Budget Control Act. That bill, passed as a result of the last fiscal showdown, required Congress to enact the across-the-board cuts (half hitting the Pentagon and half hitting non-defense spending) if it failed to reach some other deficit reduction plan by late 2011. Not surprisingly, Congress failed. There's near-unanimous agreement in Washington, however, that making mindless, across-the-board cuts to the budget would do more harm than good to the economy.
The "sequester" cuts were slated for enactment over 10 years, with about $110 billion going into effect this year. The deal passed this week allocates $24 billion in spending cuts and new revenues to defer the "sequester" cuts for two months.
Meanwhile, Washington also left negotiations over the "debt ceiling" -- the nation's legal borrowing limit -- for another day. Treasury Secretary Tim Geithnerannounced last week that the government was expected to hit its $16.4 trillion borrowing limit this past Monday and that Treasury Department is already resorting to accounting gimmicks to skirt the limit, buying Congress a couple more months to raise the ceiling.
Raising the debt ceiling was a relatively routine procedure on Capitol Hill until 2011, when tea party-inspired Republicans demanded spending cuts in exchange for allowing the government to go further into the red. The 2011 showdown over the debt limit prompted Standard & Poor's to downgrade the Treasury's debt.
In a speech before the Business Roundtable on Dec. 5, 2012, Mr. Obama warned, "We are not going to play that game next year."
"If Congress in any way suggests that they're going to tie negotiations to debt ceiling votes and take us to the brink of default once again as part of a budget negotiation -- which, by the way, we had never done in our history until we did it last year -- I will not play that game," the president said. "Because we've got to break that habit before it starts."
In earlier "fiscal cliff" talks, Mr. Obama proposed a two-year ceasefire in debt limit negotiations. House Speaker John Boehner offered one year in return, and Republicans wanted more Democratic concessions in return.
Ultimately, yesterday's "fiscal cliff" deal didn't address the issue at all. In the remarks he gave after the House passed the deal, Mr. Obama once again warned against a debt ceiling fight: "I will not have another debate with this Congress about whether they should pay the bills that they've already racked up through the laws that they passed," he said. "We can't not pay bills that we've already incurred."
Around the same time Washington will hit its debt limit, the "continuing resolution" by which Congress is funding the federal government will expire. Since Congress has been too dysfunctional to pass a real budget, it passed short-term "continuing resolutions" to keep the government running. The current resolution is set to expire on March 27, leaving open the threat of a government shutdown.
Looking for deficit reduction
With all of these issues coming down the pike, the stage is set for another round of potentially tense negotiations over how to reduce the deficit.
During "fiscal cliff" negotiations in mid-December, Mr. Obama gave Republicans some idea of what concessions he'd be willing to make when it comes to spending on programs like Social Security and Medicare. One of his proposals delivered to Boehner, the president offered to agree to $1.2 trillion in spending cuts.
About $400 billion of those cuts would have come from savings to health care entitlements like Medicare and Medicaid. Another $200 billion would have come from cuts in domestic discretionary spending, divided equally between defense and non-defense programs. Around $130 billion would have come from adjustments to defining the cost-of-living -- a change in calculations that would have effectively cut benefits for Social Security recipients.
Now that Congress has passed a "fiscal cliff" bill without any of those concessions and that actually increases deficits, Republicans are intent on cutting spending in the next fiscal battle -- not raising any more tax revenue. "Now that we have permanently settled how much revenue the government's going to take out of the economy, we can move on," Rep. David Camp, R-Mich., chair of the House committee in charge of taxes, said on the House floor Tuesday night.
The president, however, made clear this week that he expects the government to collect more tax revenues as part of its eventual "sequester" solution.
"I want to make clear that any agreement we have to deal with these automatic spending cuts that are being threatened for next month, those also have to be balanced," Mr. Obama said Monday, "because, remember, my principle always has been let's do things in a balanced, responsible way. And that means the revenues have to be part of the equation in turning off the sequester and eliminating these automatic spending cuts, as well as spending cuts."