An analysis of the year-end fiscal negotiations and their consequences.

As the United States rapidly approached the “fiscal cliff,” negotiations between President Barack Obama and House Speaker John Boehner (R-OH) faltered, and the Speaker’s subsequent “Plan B” was rejected by his increasingly unruly caucus.  As a result, the eleventh-hour negotiating fell to an unexpected duo—Senate Minority Leader Mitch McConnell (R-KY) and Vice President Joe Biden.

The deal brokered by McConnell and Biden was overwhelmingly approved by the Senate and permanently extends Bush-era tax cuts for taxable income up to $400,000 for individuals and $450,000 for couples, allowing tax rates to rise from 35 percent to 39.6 percent on income above that threshold.  It also addresses a host of other tax and policy matters, including a delay in automatic spending cuts (also known as the sequester), a capital gains tax rate increase, an increase on the estate tax, a permanent alternative minimum tax patch, the Medicare “doc fix” and extensions for unemployment benefits and farm bill provisions.

Despite reported “universal concern” from House Republicans on the deal’s tax increases and the lack of serious spending cuts, Speaker Boehner ultimately chose to bring the measure to the floor for a vote without amending it—an amendment would likely have killed the bill.  In the end, the 257–167 vote to approve the fiscal cliff aversion measure highlighted a significant split in the House Republican caucus (85 voted yes, 151 voted no), as evidenced by the fact that Speaker Boehner and Budget Chairman Paul Ryan (R-WI) supported the bill while Majority Leader Eric Cantor (R-VA) and Majority Whip Kevin McCarthy (R-CA) voted against it.  One can guess that at least one more Republican Senator who voted for the package will be subject to a Tea Party candidate in his or her Republican primary in 2014 or 2016.

The immediate reaction and fallout from the events of the last several weeks certainly does not paint House Republicans in a favorable light with regard to the Speaker’s ability to deliver his caucus, portrays internal GOP leadership divisions as evident and does not obscure the reality that the ultimate deal was brokered without House input.

But digging a bit deeper and looking ahead can paint a different picture for the Speaker and his caucus.  First and foremost is the fact that the deal negotiated between the White House and Senate Republicans did not delay or address the looming issue that the United States will soon be bumping up against its debt ceiling (again) and that the sequester was only delayed for two months.  In addition, the current Continuing Resolution (CR) for FY 2013 appropriations is due to expire at the end of March.

As a result, Congress and the White House will revisit a host of fiscal matters in the coming weeks.  The new scenario will give House Republicans—who currently appear to be in total disarray—significant new leverage when it comes to using the need for an increased debt ceiling to negotiate with the White House for increased spending cuts and entitlement reform.  At the same time, taking these tax provisions off the table does not reduce the difficulty of achieving large-scale corporate tax reform efforts in the new Congress.