Congress pushed the clock -- and Americans' patience -- to the limit and then some in its tortuous effort to avoid the so-called fiscal cliff. But what our elected representatives didn't do is the story now, and compared to the battles coming up, the late-night bargaining of the past few days may end up looking tame.
To review, the fiscal cliff was a package of tax increases and spending cuts set to take effect automatically on January 1 without action from Congress. Economists said the combination was too much all at once and would send the economy back into recession.
Congress took action, but the deal that passed late on New Year's night is almost entirely about taxes. The Bush-era income tax cuts were mostly left in place, with rates rising only for individual incomes above $400,000 and household incomes higher than $450,000. But, because Congress let the payroll tax holiday expire, taxes actually will be going up for most Americans.
So, what about those spending cuts? In a classic case of kicking the can down the road, Congress delayed the so-called sequester for two months, leaving it to the next Congress, which will be sworn in Thursday. The sequester is a series of automatic cuts totaling $1.2 trillion over 10 years. Half of the cuts would be made to defense programs, the other half to non-defense programs. Given the philosophical divide on federal spending between Democrats and Republicans, this could be an ugly fight.
But how did we get to the point where such big cuts were set to kick in automatically? Here's where we get to the main event -- the debate over the debt ceiling.
While you were getting ready for New Year's Eve celebrations on Monday, the federal government hit its borrowing limit of $16.4 trillion. In other words, we're out of money to pay our bills. The Treasury Department says it can buy some time -- two months or so -- with "extraordinary measures" to free up around $200 billion.
One only need look back at the drama over raising the debt ceiling in the summer of 2011 to realize how contentious the debate could be this time around. That last fight sent the stock market tumbling and resulted in a downgrade of the U.S. credit rating. But, more importantly, it gave rise to the sequester. Basically, Congress set up a package of severe spending cuts and put them on a timer, so that it would be forced to find an alternative before the bomb went off. Or so we thought.
Now, Congress has two months to figure it all out. President Obama set the tone for the debt ceiling debate Tuesday night, indicating he expects Congress to raise the borrowing limit if necessary.
"I will not have another debate with this Congress over whether or not they should pay the bills that they've already racked up through the laws that they've passed," Obama said.
To add to Congress' misery, there's the issue of the federal budget. The current continuing resolution funding the government (as opposed to an actual budget passed on time for the start of the fiscal year) expires on March 27. Without a new one, we could be looking at a temporary government shutdown. Remember how well that went last time?