The compromise bill passed by Congress to avert the worst effects of the "fiscal cliff" is a small, imperfect package that will do too little to address the nation's long-term debt problem. But for all its weaknesses, the bill's enactment is far better than a failure by this Congress to act.
Most important, the deal will delay the ill-targeted and unwise spending cuts known as sequestration and cancel sharp tax increases for most Americans. In the process, it will also make some worthwhile reforms.
On Tuesday, the White House trumpeted estimates that the plan would raise $620 billion in new tax revenue over 10 years and create "the most progressive income tax code in decades." According to a preliminary analysis from the nonpartisan Tax Policy Center, the top 1 percent of income earners will pay an average of nearly $51,000 more in taxes compared with current policy.
The country needs additional tax revenue, and in an era of growing inequality, the tax code should become more progressive. The bill will also permanently patch the alternative minimum tax, which has become a perennial headache for Congress.
Yet despite these desirable structural changes, the deal will not reduce future deficits much, even though Congress engineered the fiscal cliff to force ambitious budget reform. Relative to current policy, only 0.7 percent of American households will pay more in income and capital gains taxes, producing too little revenue. For context, the deal's $620 billion in new revenue over 10 years is smaller than any single year's projected deficit in the coming decade.
If Republicans' opposition to raising tax revenue weren't so blinkered, they could have extracted more from Democrats in return for higher tax rates for more wealthy Americans. If Democrats hadn't fought a money-saving reform to Social Security, they would have been in a better position to demand those higher rates on incomes or big estates. Instead, lawmakers seem to have gotten as close as they could to doing the bare minimum.
The United States will have to wait longer yet for its inevitable budget reckoning. Lawmakers are girding for battle over raising the debt limit, and sequestration's spending cuts will continue to threaten vital government operations, including at the Pentagon. That means more brinkmanship in the next couple months. Then Congress and President Obama will have to tackle future annual budgets.
We hope the nation's leaders will be able to accomplish in stages what they have been unable to do in a series of self-imposed crises: raise more revenue and significantly reduce future entitlement spending. But the fiscal cliff episode offers little encouragement.