Maybe Washington Inches Back from the Cliff, or Maybe Not

Econintersect:  The headlines sounded promising that some progress was being made on the fiscal cliff problem.  Speaker John Boehner and Democratic Senate Majority Leader have reached a deal that will keep the government funded for six months after September, when the current fiscal year budget ends.  According to Richard McGregor in the Financial Times, the deal will keep spending limits established in the 2011 Budget Control Act but will not include some of the most draconian cuts that have been demanded by some Republicans.

From the Financial Times:

… the deal averts a partisan clash leading to a possible government shutdown, something that neither party wants in the lead-up to the election.

The Republicans were especially damaged by brinkmanship concerning last year’s budget showdown over extending the US’s borrowing limits, and Mr Boehner has been keen to avoid a repeat.

In what has been released so far there is no indication that the fiscal cliff issue which arrives at midnight on December 31 of this year has been addressed by this agreement.  From Reuters:

If passed by Congress, the deal for a six-month spending extension eliminates one layer of difficult year-end bills Congress must grapple with just after the election as it deals with the “fiscal cliff” of expiring tax cuts, automatic spending cuts, a debt-limit increase and other fiscal deadlines that economists say if not averted could harm an already-weak economy.

John Lounsbury

Sources:

• US politicians reach short-term budget deal (Richard McGregor, Financial Times, 31 July 2012)

• Congress leaders reach deal to avoid government shutdown threat (David Lawder and Richard Cowan, Reuters, 31 July 2012)

• Nine Components of the Fiscal Cliff (GEI News, 19 July 2012)