Faux fix

2 January 2013 By Daniel Indiviglio

A last-minute, pint-size fiscal deal sets the stage for another cliffhanger in a few months. Worse, chances for deficit reduction are probably weaker now. In theory, everyone should want a broader plan but voters are too narrowly focused. Investors get the final word.

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The U.S. House of Representatives voted on Jan. 1 to approve a bill passed by the Senate to avoid a large portion of tax increases and spending cuts scheduled for 2013. President Barack Obama is expected to sign the legislation.
The package will make 2012 income tax rates permanent for families who earn less than $450,000 or individuals who earn less than $400,000 a year. It boosts marginal rates to 39.6 percent from 35 percent for wealthier Americans. It also increases dividend and capital gains rates to 20 percent from 15 percent for that higher-earning group. The tax measures will provide about $500 billion in additional revenue over a decade, according to calculations by the Committee for a Responsible Federal Budget, a bipartisan non-profit organization.
On the spending side, the legislation postpones about $100 billion in annual cuts for two months. It does not contain any reforms of entitlement programs such as Social Security and Medicare. It also fails to raise the debt ceiling. Although the U.S. Treasury says government borrowing has reached the statutory limit, it is taking extraordinary measures to prevent default until late February or early March.

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