By Bernie Becker and Peter Schroeder - 01/01/14 06:00 AM EST
Economic issues dominated discussion in Washington for much of the year — from the opening moments of 2013 until lawmakers broke for the holidays.
Washington suffered through its first government shutdown in 17 years after Republicans tried — and failed — to stop funding for the healthcare law.
Late in the year, Republicans and Democrats actually came together on a limited budget agreement with days to spare — a positive sign that both sides hoped would carry over into 2014, when fiscal issues are again likely to take center stage.
With that, here are the five biggest economic stories of 2013.
1) The fiscal cliff
True enough: Most of the battle over the so-called “fiscal cliff” occurred in late 2012, as Democrats and Republicans worked to head off the tax increases and spending cuts that economists warned would threaten an already sluggish economic recovery.
But the deal that Obama signed on Jan. 2 — and the bitter taste it left in Republicans’ mouths — brought an even more toxic atmosphere to Washington, and affected fiscal negotiations for the rest of the year.
Holding all the leverage, Democrats scored long sought-after tax rate increases on the wealthiest, and delayed automatic spending cuts known as sequestration for two months.
But Obama and the Democrats also misjudged what the fiscal cliff deal meant, thinking it set a precedent that would allow them to score new tax revenue in future budget deals.
Republicans saw it differently, holding the line against any future attempts to raise taxes, especially when it came to negotiations to roll back the cuts from sequestration.
2) The shutdown
Democrats and Republicans had narrowly averted shutting the lights on the government several times since the GOP won the House in 2010.
Until October, that is.
That’s when the government closed for 16 days, as Republicans tried to take a final stand against Obama’s healthcare law.
Dozens of firebrands in the House and Tea Party favorites like Sens. Ted Cruz (Texas) and Mike Lee (Utah) pushed the hardest for the confrontation, eventually forcing the hand of GOP leaders.
Republicans like Sen. John McCain (R-Ariz.) decried the tactics, saying their “wacko bird” GOP colleagues had gotten into a fight where they had no path to victory. With a debt-limit deadline also looming, Republicans eventually backed down and reopened the government, gaining little in the way of concessions.
For Democrats, the shutdown victory likely was the political high point of the year. But it was also short-lived: The shutdown only temporarily obscured the problems with the ObamaCare rollout that started Oct. 1.
3) The budget deal
The October shutdown paved the way for December’s narrow budget deal that was struck by Rep. Paul Ryan (R-Wis.) and Sen. Patty Murray (D-Wash.).
Ryan and Murray agreed to turn off billions of dollars in sequester spending, using offsets like increased airline fees, reduced military pensions and Medicare cuts years down the line.
The deal easily passed the House before clearing the Senate by a closer margin.
The agreement marked a big achievement for both Murray, a co-chair of the doomed supercommittee in 2011, and Ryan, the GOP budget chairman beloved by conservatives but with few legislative achievements to his name.
Top GOP leaders claimed victory because there were no tax increases in the deal. Democrats portrayed themselves as the winners because the deal reversed part of the hated sequester. And lawmakers on both sides of the aisle said they hoped the agreement could be a springboard to broader fiscal bargains.
But as neither side budged from their principles, it’s hard to see how the deal will lead to a thaw in the fiscal wars. It also pushed the bad blood between Speaker John Boehner (R-Ohio) and outside conservative groups into the public eye.
4) The IRS controversy
The IRS’s acknowledgment in May that it inappropriately targeted Tea Party groups drew immediate condemnation from both sides of the aisle, with President Obama showing the agency’s acting commissioner the door.
But the bipartisan denouncements of the IRS’s treatment of groups seeking tax-exempt status quickly gave way to a partisan fight over what, and who, was to blame.
While the controversy first erupted white hot, it was overtaken by a slew of other issues. Several congressional investigations into the targeting remain ongoing, as is a criminal probe. But top Republicans have also criticized the FBI for what they see as a lackluster criminal inquiry.
Republicans suggested the IRS targeting was part of a larger issue with the administration, which also faced questions about its handling of the terrorist attack in Libya and the seizing of reporters’ phone records in May.
But Democrats insist the problem was wholly located inside the IRS, and say it resulted from incompetence more than anything else. They’ve also criticized the inspector general who outlined the targeting.
5) The Fed tapers
The Federal Reserve’s December decision to finally beginning slowing down what had been a steady diet of stimulus for the economy came as a bit of a surprise to markets.
But Chairman Ben Bernanke, in one of his final acts in office, and the rest of the Fed said they’re confident the economic recovery can now stand on its own two feet.
The Fed had pumped trillions of dollars into the economy since the recession began, with the latest round of bond buying starting in September 2012.
Bernanke & Co. kept with the policy even as Republican criticism mounted. And even now, the Fed is emphasizing it will be tweaking its walk-back as new economic data comes in, and will reassess the policy if recovery falters.
The decision to start unwinding the stimulus now could also make for a smoother transition for Janet Yellen, who the Senate is expected to confirm to be Bernanke’s successor in early January.