The agreement, which the Senate approved only hours after the government hit the limit on federal borrowing, fails to defuse the prospect of a catastrophic national default two months from now. The deal does not raise the debt ceiling, leaving the Treasury to use what it calls “extraordinary measures” as long as it can to pay the government’s bills.The extension of unemployment insurance helps to stave some of the blow to economic activity. A good deal, however, would address unemployment with actual economic stimulus and would offset the blow of the payroll tax cut expiring by replacing it with an equivalent tax break for people earning less than $113,000, the level where the payroll tax is capped.
Nor does the package do anything to address stubbornly high levels of unemployment, with 12 million Americans out of work. Instead, the deal could aggravate the problem. By allowing the payroll tax cut to expire, the deal takes money out of the hands of many Americans, sucking it out of the economy and slowing economic activity.
To top it off, it leaves austerity hanging over the nation for the next two months, creating uncertainty for business and consumers. The fact that the next debt ceiling fight will coincide with the spending cuts, and the fact that the Republican House has demonstrated one more time how happy it is to take the nation to the brink, just compounds that uncertainty. Congress and the White House avoided going over a curb on Tuesday, but they set us up for a real cliff in 60 days.