Fiscal Cliff Timeline: How Did We Get Here?
With the deadline to avert the "fiscal cliff" quickly approaching, it may be helpful to recall how we reached this point. Here is a timeline, or "fiscal cliff notes," of events that led to the current predicament.
1917: Congress first put a limit on the amount and types of debt the Treasury Department was allowed to issue. It was initially intended to give the Treasury more flexibility, not less, to manage the nation's finances. Eventually, members of Congress realized they could use it to force tough choices in the federal budget.
1935: The Social Security program is implemented. It is a social insurance program for retirees over age 65 (later increased to 67). Implemented as a "pay-as-you-go" system, current workers pay the taxes for current retirees. When it was first implemented, few workers lived to age 65 and fewer still lived long past 65. Over time, however, as health care improved, more people lived to age 65 and collected Social Security for a longer period after age 65. Add to that the retirements of the Baby Boom generation, and the cost of Social Security is expected to rise dramatically over the next decade.
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1939: A single debt ceiling is put in place.
1965: Medicare (health insurance for the elderly) and Medicaid (health insurance for the poor) are created. The costs of Medicare would rise for the same reasons the Social Security became more expensive -- more people living long and more retirees accompanying the Baby Boom generation. Add to that the rising costs of health care and Medicare will become, by far, the biggest drain on the federal treasury over the near future, unless substantial changes are made to the program. If no changes are made, Medicare, Medicaid, Social Security, and interest on the debt are expected to eat up the entire federal budget by 2025.
1985: Americans for Tax Reform is founded by Grover Norquist. The organization will advocate for lower taxes and become well known for their no-tax pledge that members of Congress will sign, promising to not raise taxes.
1990: President George H. W. Bush breaks his "read my lips, no new taxes" pledge.
1992: George H. W. Bush loses re-election. The lesson many Republicans will take away from that loss is never raise taxes.
2001 and 2003: Congress passes the Bush tax cuts. There are not enough votes to make them permanent, so they are set to expire in 2010.
2003: Invasion of Iraq begins. Total costs estimates for the war range from $700 billion to $3 trillion. In the same year, Congress adds a prescription drug benefit to Medicare, but decides to pay for it by borrowing more money, rather than raising taxes.
October 2008: The Great Recession begins.
February 2010: Obama creates the National Commission on Fiscal Responsibility and Reform, which will become known as the Simpson-Bowles Commission after its leaders, Alan Simpson, a Republican, and Erskine Bowles, a Democrat. Its mission is to come up with a plan to "achieve fiscal sustainability in the long run."
March 2010: The Affordable Care Act, or "Obamacare," is signed into law. The parts of the law that will have the most impact on the economy, such as cuts in payments to health care providers and tax increases, are set to go into effect in 2013 (after the 2012 election). (Fiscal Cliff Factor #1)
2010: Both houses of the Democratic controlled Congress fail to pass a budget. Democrats worry that passing a budget will give Republicans an issue to run against them on in the November election and they will lose seats.
November 2010: Democrats lose seats. Republicans take control of the House and gain six Senate seats. The Tea Party Movement, which is greatly concerned about the national debt and believes the government is too big, is given much credit for the Republican victories. Though in Senate races in Delaware, Nevada, and Alaska, the Tea Party candidate lost. Tea Party candidates will have more influence in the House than the Senate.
December 2010: The president's deficit commission, or Simpson-Bowles, issues its report calling for at least $4 trillion in deficit reduction over 10 years. It calls for major reforms to Social Security but leaves out reforms to Medicare or Medicaid. The report also calls for an overhaul of the tax code that would eliminate many deductions and credits and lower all tax rates.
December 2010: Congress and President Obama agree to extend the Bush tax cuts for another two years. The tax cuts will now expire on Dec. 31, 2012, unless changes are made. (Fiscal Cliff Factor #2)
January 2011: The Senate's "Gang of Six" (three Republicans and three Democrats) begin meetings to discuss implementing the Simpson-Bowles proposal.
Feb. 14, 2011: Obama submits his 2012 budget to Congress, as he is required to do by law. The budget freezes non-military, non-entitlement spending at 2010 levels. It takes up none of the entitlement reform or tax reform ideas of the Simpson-Bowles Commission report.
April 9, 2011: Since the previous Congress did not pass a spending bill to fund the 2012 fiscal year, it is left up to the new Republican controlled House and Democratic controlled Senate. Obama and the Democrats want to keep funding at 2010 levels. Republicans are determined to get budget cuts into the current fiscal year budget. After much wrangling, they pass a plan, which Obama signs, just in time to avoid a government shutdown. The plan cuts $38.5 billion and funds the government through the end of September. Joe Biden starts talks with a bipartisan group of Congresspersons and Senators to try and forge a compromise on deficit reduction and raising the debt ceiling.
April 13, 2011: Obama gives a speech laying out a framework for a new budget and sets a goal of cutting $4 trillion over 10 years. The Congressional Budget Office would later say that they "don't score speeches," and there is not enough detail in the speech to calculate how much money could actually be saved under Obama's plan.
April 15, 2011: The House passes a 2011 budget. It would reform Medicare and Medicaid and cut spending by $4.4 trillion over the next decade. The Senate will not take up the budget and will continue to avoid passing its own budget.
May 11, 2011: Speaker of the House John Boehner announces that House Republicans will not support any debt limit increase without at least an equal amount of spending cuts.
May 16, 2011: The U.S. hits its debt limit. Treasury Secretary Timothy Geithner begins taking steps that will allow his department to continue to pay its bills. He informs Congress that he will have no more wiggle room by Aug. 2 and the debt limit must be raised by then if the nation is to make its promised payments.
May 17, 2011: Sen. Tom Coburn (R-Okla.) leaves the "Gang of Six" talks, reportedly over the Democratic members' unwillingness to make significant cuts to Medicare.
May 31, 2011: To make a point, House Republicans vote on a "clean" (no spending cuts) debt ceiling increase. Every Republican and 82 Democrats vote "no."
June 23, 2011: House Majority Leader Eric Cantor (R-Va.) pulls out of the Biden negotiations citing an impasse over whether tax increases will be included in the package.
July 2, 2011: Boehner has a private meeting with Obama at the White House. He suggests that they go big and forge a "grand bargain" that would include spending cuts with entitlement reform and tax reform that increases revenue. Obama will grab this idea and run with it. He continues to say that he wants a "big deal" after this point.
July 9, 2011: Boehner pulls out of talks with Obama on a "grand bargain" citing differences on the revenue increases.
July 13, 2011: Debt talks at the White House get heated. Cantor repeatedly brings up the idea of a small debt limit increase. Obama tells Cantor, "Eric, don't call my bluff. Would Ronald Reagan be sitting here? This may bring my presidency down, but I will not yield on this," then abruptly walks out.
July 15, 2011: Despite Boehner's July 9 announcement, private talks over forging a "grand bargain" continued. Boehner and Cantor invite White House officials to a private meeting where they offer a compromise -- $3 trillion to $3.5 trillion in spending cuts with $800 billion in revenue increases through tax reform. The tax reforms would come later from a bipartisan congressional committee assigned with the task. Private talks continue over the weekend and Obama seems agreeable to the compromise.
July 18, 2011: Coburn rejoins "Gang of Six" and they announce a plan to reduce deficits by $3.7 trillion. It includes cuts to entitlements and revenue increases from eliminating tax deductions.
July 19, 2011: Obama tells Boehner and Cantor that he wants an additional $400 billion in revenue increases to more closely align the proposal with the "Gang of Six" proposal.
July 21, 2011: Word leaks about the private negotiations between Obama, Boehner, and Cantor. Democrats get upset with the White House for leaving them out of the negotiations. Obama reassures Democrats that there was never a deal.
Boehner pulls out of negotiations with the White House, saying Obama's demand for an additional $400 billion is asking for too much. In later interviews with Washington Post reporter Bob Woodward, Obama would say he only asked Boehner to consider the additional revenue. Boehner tells Woodward that Obama demanded the additional revenue.
July 22, 2011: Obama holds a news conference where he is visibly angry at Republicans, and Boehner in particular. He complains that Boehner did not return his phone calls and that he has been "left at the altar two times now."
July 31, 2011: Two days before the debt ceiling deadline, an agreement is reached. The Budget Control Act of 2011 increased the debt limit just enough to get through 2012, $1 trillion will be cut over 10 years, and a "supercommittee" will be formed to come up with a bill to reduce deficits by another $1.2 trillion. There is a "trigger" added to the bill to encourage the supercommittee to complete its task -- if it fails, automatic spending cuts, or "sequestration," will start going into effect in 2013.
Congress and the president will again need to negotiate an increase to the nation's debt limit in early 2013. (Fiscal Cliff Factor #3)
Sept. 8, 2011: After much public pressure to come up with a specific plan to deal with the high rate of unemployment, Obama announces a jobs bill before a joint session of Congress.
Obama claims the legislation contains $4.4 trillion in deficit reduction, but he counts the $1.2 trillion in cuts that was already passed under the Budget Control Act, $1.1 trillion from not extending the wars in Iraq and Afghanistan (money he was not going to spend anyway), and $430 billion in savings from reduced interest payments on the debt. To pay for the additional $447 billion in spending, the legislation would require the supercommittee to find additional savings.
The Senate would later vote down the bill, but the proposal would become part of Obama's platform for his 2012 re-election campaign.
Nov. 21, 2011: The supercommittee fails to reach an agreement. Automatic spending cuts, worth $1.2 trillion over 10 years, will go into effect beginning in January 2013. Half of those cuts will come from the Department of Defense budget. (Fiscal Cliff Factor #4)
February 2012: Congress and President Obama agree to extend unemployment benefits and the payroll tax cut until the end of the year, which means unemployment benefits will expire and most workers will begin paying more in taxes in January 2013. (Fiscal Cliff Factor #5)
Sept. 7, 2012: In his acceptance speech at the Democratic National Convention, Obama says he is "eager to reach an agreement based on the principles" of the Bowles-Simpson commission.
Nov. 6, 2012: Voters re-elect President Obama, a Democratic Senate and a Republican House of Representatives, thus maintaining the status quo.
Nov. 7, 2012: Boehner delivers a speech saying that Republicans are open to raising revenue as part of a compromise to avoid the fiscal cliff. The revenue, though, must come from tax reform, not raising tax rates. Boehner also insisted that Democrats agree to entitlement reform as part of the compromise.
Nov. 9, 2012: Obama delivers a speech in which he says he is "open to compromise" on the fiscal cliff and "not wedded to every detail of my plan." Later that day, White House spokesperson Jay Carney says that Obama will veto any plan that does not increase tax rates on those making more than $250,000.
Nov. 29, 2012: Obama proposes a fiscal cliff solution to Republicans. It includes letting the Bush tax cuts expire on those making more than $250,000, increased spending on infrastructure, unemployment insurance, and deferring the sequester, and a permanent increase to the debt limit. Tax reform would come later to raise $1.6 trillion in revenue and $400 billion would be cut from entitlements, but there would be no structural reforms to entitlements. The proposal also included some of Obama's usual budget gimmicks, such as savings on wars that Obama never intended to fight in the first place. Republicans describe the proposal as laughable and insulting.
Dec. 3, 2012: Boehner makes a counterproposal that includes structural entitlement reforms and $800 billion in new revenue from tax reform. The White House complains that the offer is not balanced and does not provide enough details.
December 2012: Republicans continue to insist that revenue increases come from tax reform, not rate increases, and complain that Obama has not offered specific proposals for entitlement reform. Democrats insist that not enough revenue can be raised through tax reform alone to meet the goal of $4 trillion in deficit reduction, and complain that Republicans have not offered specific proposals on tax reform. Private negotiations among staffers continue.
