With global markets closed in observance of New Year's Day, economists, pundits and rank-and-file politicians watched nervously as the day passed without any sign of a last-minute deal. However, before their hopes were completely dashed, a speedy yet successful vote was held and the massive tax hikes and spending cuts were virtually eliminated.
According to various media reports, the recently approved legislation was the result of tense negotiations between U.S. Vice President Joseph Biden and Senate Minority Leader Mitch McConnell. The side deal was held as talks between Republican Speaker John Boehner, President Barack Obama and Senate Majority Leader Harry Reid broke down over acrimonious squabbling. For example, last week, Senator Reid referred to Speaker Boehner's tenure as a "dictatorship," which later drew a reportedly curt bout of cursing between the two earlier this week.
With the deal in place, however, the fiscal situation in the United States has entered a new – and potentially dangerous – phase. The law that was passed mirrors efforts conducted in the Senate earlier this year, including a tax hike threshold of $400,000 for individuals and $450,000 for families. While this spared the American middle class from a comprehensive rate increase, the expiration of the Social Security tax holiday means that most U.S. workers will see less in pay during 2013. Additionally, all of the spending cuts that would have occurred this month were postponed for a two month period.
The bill was also notable for a variety of miscellaneous provisions that have little to do with the fiscal cliff. Several news outlets, including ABC News, identified a number of inclusions that some Americans – especially those paying more in taxes – might object to, such as $430 million in Hollywood tax breaks and $70 million in subsidies for NASCAR track owners.
At this time, it's tough to say whether the deal will prevent any long-term damage to the U.S. economy. Issues such as the debt ceiling and government spending must wait until the 114th Congress is sworn in, meaning that there is little economic certainty in the months ahead.
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