In a statement after the vote, House Speaker John Boehner, R-Ohio, said, “Now the focus turns to spending. The American people re-elected a Republican majority in the House, and we will use it in 2013 to hold the president accountable for the 'balanced' approach he promised, meaning significant spending cuts and reforms to the entitlement programs that are driving our country deeper and deeper into debt."
Obama, meanwhile, hailed the end of the fiscal crisis but to set out a marker for the next one. “The one thing that I think hopefully the new year will focus on is seeing if we can put a package like this together with a little bit less drama, a little less brinkmanship, and not scare the heck out of folks quite as much," he said.
But he warned Republicans against trying to use a forthcoming vote on raising the debt ceiling to extract spending concessions.
“While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills they've already racked up through the laws they have passed," he said. “Let me repeat, we can't not pay bills that we've already incurred."
Michael Feroli, chief U.S. economist at J.P. Morgan Chase, cautioned that the deal is a stopgap measure at most.
“What's challenging is that we're still going to have some slowing in growth because of the tax hikes," said Feroli, who estimated Tuesday that the deal would subtract 1 percentage point from already meager growth. “What's not good is that deficits are still going to be large and it doesn't begin to touch the longer-term horizon."
Vincent Reinhart, chief U.S. economist at Morgan Stanley, said the agreement does not even relieve the anxiety of businesses and consumers because so many economic challenges are left unresolved.
“There's an immediate fiscal drag, and there's no offsetting bonus in confidence because fiscal uncertainty is still considerable," he said.
Despite the drawbacks, the bipartisan deal may well have been the heaviest lift a deeply divided Congress could have accomplished. And the package, no doubt, has its benefits.
It is likely to prevent the nation from dipping back into recession. It cancels massive tax increases facing middle-class and poor Americans. And it delays deep and blunt government spending cuts for two months.
And while the agreement does nothing to reduce joblessness, it renews unemployment benefits that would have otherwise expired, offering vital help to the jobless and averting another blow to economic activity.
And finally, by raising a little more than $600 billion in fresh tax revenue from the wealthy, the deal takes a step toward bringing spending and taxes into line for the next few years — though economists stress that much more needs to be done over the long run.
Only the most affluent American households would pay higher income taxes this year under the terms of the deal, but most households will face higher payroll taxes because the deal does not extend a 2-year-old tax break.
The legislation will grant most Americans an instant reversal of the income tax increases that took effect with the arrival of the new year. Only about 0.7 percent of households will be subject to an income tax increase this year, according to the Tax Policy Center, a nonpartisan research group in Washington. The increases will apply almost exclusively to households making at least half a million dollars, the center estimated in an analysis published Tuesday.
But lawmakers' decision not to reverse a scheduled increase in the payroll tax that finances Social Security, while widely expected, still means that about 77 percent of households will pay a larger share of income to the federal government this year, according to the center's analysis.
The tax this year will increase by two percentage points, to 6.2 percent from 4.2 percent, on all earned income up to $113,700.
“It's a huge hit," says Joel Naroff, president of Naroff Economic Advisors. “It hits people whether they're making $10,000 or they're making $2 million. It doesn't matter who you are ... The lower your income, the more of your income you're (spending). So if you're taxes go up, it's going to come out of your spending."