It's better that Congress and President Obama restrained themselves at the last minute rather than shove the nation off the fiscal cliff. But in defusing a crisis solely of their own making, they again refused to address the reforms in taxing and spending that remain necessary to make meaningful progress on cutting America’s long-term debt.
These issues are likely to return in a few weeks, when Republican lawmakers are likely to hold the country hostage again over raising the debt ceiling. Until then, the small victories of this week’s agreement deserve to be noted.
The compromise begins to reverse the worst excesses of the George W. Bush tax cuts of the past decade by raising income, dividend, and capital-gains taxes on roughly the richest 1 percent of Americans. It also limits tax deductions and exemptions for wealthy taxpayers.
Mr. Obama relented on his demand to raise tax rates on the top 2 percent. But even then, a distressingly large number of Republican House members — including Jim Jordan of northwest Ohio and Timothy Walberg of southeast Michigan — were prepared to send the nation back into recession by voting against the weaker deal rather than moderating in the slightest their rigid anti-tax ideology.
The Bush tax cuts remain for families that earn less than $450,000 a year and individuals who make less than $400,000. But less-wealthy households still will watch their taxes rise: Under the deal, a previous cut in the payroll tax that pays for Social Security will expire. The typical family will pay $1,000 more a year.
The agreement properly renews unemployment benefits for long-term jobless workers, including 65,000 in Ohio and 2,400 in Lucas County. It extends tax credits for low-income working families and Medicare payment rates for doctors. It protects middle-class families from the alternative minimum tax, which was designed to prevent the wealthiest households from avoiding income tax.
The compromise also avoids — at least for a few months — arbitrary across-the-board cuts in spending that would devastate essential military and domestic programs. It extends a useful tax credit for wind-power production, an issue of special importance to Ohio.
But these achievements are dwarfed by what the compromise doesn’t accomplish. The $620 billion in new revenue it is expected to raise over a decade represents far too small a down payment on reducing annual budget deficits, much less the $16 trillion debt.
Its efforts to make the tax code more progressive are not enough to keep up with the growth of income inequality in America. It will maintain unnecessarily low tax rates on the wealthiest estates.
Republicans, who appeared to get the better of this deal, must concede that the nation needs more tax revenue than they have been willing to approve to fund the investments and programs Americans say they want. And Democrats must acknowledge that the growth in the cost of entitlement programs such as Social Security and Medicare needs to be curbed.
Entitlement reform must protect the most vulnerable recipients of these programs from GOP assaults — such as by finding ways to moderate health-care costs and tying cost-of-living increases to a more realistic definition of inflation. But declaring entitlements off the table only makes the problem bigger and the ultimate solutions more painful.
This week’s agreement is better than nothing, barely. But no one should mistake it for the real bipartisan budget reform — or the commitment to it on Capitol Hill and in the White House — that the nation, and world financial markets, still urgently need.