On Wednesday, January 2, 2013, the President signed into law H.R. 8, also known as the American Taxpayer Relief Act of 2012, thereby avoiding the dreaded “fiscal cliff.”

The “fiscal cliff” describes U.S. federal tax increases and nearly $500 billion in spending cuts which were set to take effect at the end of 2012 and in early 2013 if Congress failed to act on the U.S.’s increasingly dire fiscal situation.  The planned tax increases included the expiration of the Bush tax cuts—which would have affected the vast majority of Americans—and a rise in estate and capital gains taxes.  The budget cuts included an annual slashing of $109 billion between 2013 and 2021—cuts established by the Budget Control Act during the 2011 summer debt ceiling fiasco—and several other economic impedances such as the end of unemployment benefits and a thirty percent reduction of Medicare payments to participating doctors.  Together, this maelstrom of fiscal tightening was predicted by the Congressional Budget Office to decrease GDP in 2013 by 0.5 percent and cause unemployment to rise above nine percent from its current 7.8 percent.

After several failed attempts to reach a compromise, Congress adjourned for Christmas with no clear deal on the horizon.  The stock market and oil prices slipped and the wealthy began funneling their money into trusts and offshore accounts.  It seemed that most Americans felt the fiscal cliff was imminent.

But, in the eleventh hour, Congress struck a deal to stave off what most certainly would have been another recession.  At 1:58 a.m. ET on January 1, 2013, the Senate voted 89-8 to pass the American Taxpayer Relief Act of 2012.  After passing in the House of Representatives 257-167, President Obama officially signed the bill into law on January 3, 2013.

While widely seen as a Republican failure, the bill does reflect some modest compromise: the Bush tax cuts have been made permanent for those with annual incomes below $400,000, the estate tax exemption will remain at $5 million, and capital gains taxes will only rise from fifteen percent to twenty percent for those with incomes above $400,000.

Although Americans should rest easier knowing that a fiscal disaster has been averted, still larger issues loom on the horizon.  The fiscal cliff deal reached thus far only addresses tax increases.  An agreement on budget cuts still needs to be hammered out in the coming months, an issue destined to be more contentious than tax increases, as Republican members of Congress are sure to take aim at entitlement reform and put Medicare, unemployment benefits, and Social Security on the chopping block.