WASHINGTON -- President Barack Obama has signed the compromise bill to avert the "fiscal cliff," but the New Year's Day deal that won final congressional approval lays the groundwork for more combustible struggles in Washington over taxes, spending and debt in the next few months.
In two months, painful across-the-board spending cuts to the Pentagon and domestic programs are set to kick in, and the government runs out of the ability to juggle its $16.4 trillion debt without having to borrow more.
Unless Congress increases -- or allows Obama to increase -- that borrowing cap, the government risks a first-ever default on U.S. obligations. Republicans will use this as an opportunity to leverage more spending cuts from Obama, just like they did in the summer of 2011.
Obama's victory on taxes this week was the second, grudging round of piecemeal successes in as many years in chipping away at the nation's mountainous deficits. Obama, who is vacationing in Hawaii, signed the bill with an autopen, a mechanical device that copies his signature, the White House said Wednesday.
Despite the length and intensity of the debate, the deal to raise the top income tax rate on families earning more than $450,000 a year -- about 1 percent of households -- and including only $12 billion in spending cuts turned out to be a relatively easy vote for many. This was particularly so because the alternative was to raise taxes on everyone.
But in banking $620 billion in higher taxes over the coming decade from wealthier earners, Obama and his Republican rivals have barely touched deficits still expected to be in the $650 billion range by the end of his second term. And those back-of-the-envelope calculations assume policymakers can find more than $1 trillion over 10 years to replace automatic across-the-board spending cuts known as a sequester.
"They didn't do any of the tough stuff," said Erskine Bowles, chairman of Obama's 2010 deficit commission. "We've taken two steps now, but those two steps combined aren't enough to put our fiscal house in order."
In 2011, the government adopted tighter caps on day-to-day budgets of the Pentagon and other cabinet agencies to save $1.1 trillion over 10 years.
The measure passed Tuesday prevents middle-class taxes from going up while raising rates on higher incomes. It also blocks severe across-the-board spending cuts for two months, extends unemployment benefits for the long-term jobless for a year, stops a 27 percent cut in Medicare fees paid to doctors, and prevents a possible doubling of milk prices.
The alternative was going over the cliff, an economy-punching half-trillion-dollar combination of sweeping tax increases and spending cuts.
Looking ahead, House Speaker John Boehner (R-Ohio) vows that any increase in the debt limit must be accompanied by an equal amount in cuts to federal spending. That puts him on yet another collision course with Obama, who has vowed anew that he won't let haggling over spending cuts complicate the debate over the debt limit.
The cliff compromise represented the first time since 1990 that Republicans condoned a tax hike. That has whipped up a fury among tea party conservatives and increased the pressure on Boehner to adopt a hard line in coming confrontations over the borrowing cap and the spending cuts that won only a two-month reprieve in this week's deal.
Republicans' refusal to weigh additional new tax revenue is sure to stir up resistance when Democrats are asked to consider politically painful cuts to so-called entitlement programs like Medicare. Democratic protests led Obama and Boehner to take a proposal to increase the Medicare eligibility age off the table.
Other fiscal challenges
Around the end of February, the nation will hit its $16.4-trillion legal borrowing limit. Republicans want major spending concessions before agreeing to raise the limit again. President Barack Obama said raising the ceiling should not be part of a spending negotiation.
Beginning of March: Deep automatic spending cuts to reduce the deficit, split between the military and domestic programs, will take effect if there is no congressional action to target cuts and bring in more revenue.
March 27: A funding measure keeping the government operating expires. If Congress does not adopt a new bill, the government will shut down.
-- Washington Post