Congress Passes Last-Minute Fiscal Cliff Deal

Speaker of the House John Boehner, R-Ohio, on his way to last-minute fiscal cliff talks. Image from Jacquelyn Martin (AP)

Speaker of the House John Boehner, R-Ohio, on his way to last-minute fiscal cliff talks. Image from Jacquelyn Martin (AP)

America did go over the fiscal cliff after all, if only for a few hours. But on the very day that automatic tax increases and spending cuts were set to take effect, the House of Representatives approved a deal crafted and approved by the Senate to avoid the crisis that many predicted would have sent the United States back into an economic recession. President Barack Obama has already announced he plans to sign the deal into law. “I think we all recognize, this law is just one step in the broader effort to strengthen our economy and broaden opportunity for everybody.” the president said, “The fact is, the deficit is still too high, and we’re still investing too little in the things we need for the economy to grow as fast as it should.”

The bill passed the Senate 89-8 and the House 257-167. Among those voting “no” were a majority of House Republicans and a handful of House Democrats. The 85 Republican “yes” votes on the deal allowed the bill to pass. You can find out how your Senator voted here, and how your Representative voted here.

The bill was necessitated by a series of deadlines that all lined up at the same time. On Jan. 1 of this year, tax cuts that dated to 2001 were set to expire, raising taxes on all Americans. Meanwhile, an agreement reached over the debt ceiling wrangle in 2011 attempted to incentivize a large-scale budget compromise by declaring a sweeping set of spending cuts of $109 billion would take effect on Jan. 1 if no better deal were reached. What’s more, the U.S. government reached the new debt ceiling at the end of the year. These three issues all taking place at once meant that no agreement would have meant higher taxes, fewer government services, and as much as a 4-5% drop in GDP.

You can read the agreement here.

The bill’s major provisions include:

  • Americans who earn less than $400,000 per year as individuals and $450,000 per year as a married couple will keep their current tax rates, while those who earn more than that will have their top tax rate increased to 39.6%. This means that 98% of Americans will not see their income tax go up.
  • Americans who earn more than $250,000 per year as individuals and $300,000 per year as a married couple will have limits on what tax deductions and exemptions they can make. This means people not wealthy enough for the new top tax rate but still pretty wealthy will still see higher taxes of a sort, in that they will have fewer ways to reduce their tax bill.
  • Capital gains taxes for those who earn more than $400,000 per year as individuals and $450,000 per year as a married couple will be increased to 20%. This means that people whose wealth is based on investments instead of regular income will also see higher taxes.
  • The top tax rate for estate taxes will be increased to 40%. This means that when someone dies, their estate will be taxed at a higher rate if it is worth more than $5 million ($10 million for families).
  • The Alternative Minimum Tax will now be adjusted for inflation. This will prevent many middle-class and upper-middle-class families who qualify for the AMT will not see an increased tax bill.
  • Payroll taxes on all Americans will go back up to 6.2%, after a year of having a 4.2% payroll tax rate. Payroll taxes go to funding Social Security. This means that all Americans, regardless of income, will have less take-home pay after taxes per paycheck.
  • Various tax credits that were set to expire have been extended. These include the child tax credit, tax credits on college tuition, the earned-income tax credit, and various tax credits for businesses for investments, research, and for supporting renewable energy.
  • Unemployment benefits have been extended for a year.
  • Delays for one year a 27% drop in Medicare payments to doctors. Doctors are forced to accept whatever Medicare offers them when treating senior citizens, often receiving far less than most patients would pay via insurance or out-of-pocket.
  • Extends for one year certain programs that support America’s agricultural industry. The Economist had warned if these programs were not extended, farmers across America would suffer.

The bill, however, does not fix the $109 billion in automatic spending cuts, instead simply delaying their implementation for two months. Neither does the bill address the debt ceiling. The Treasury department is using “extraordinary measures” such as suspending government pension programs that invest in government bonds to buy some time, but at best these measures will only work until February. This means that Congress is not out of the woods yet, and that there will be even more fiscal wrangling in the months to come.

Still, the news that Congress did avoid the fiscal cliff, at least for the time being, has helped out the world’s markets, which have all reported a strong showing. The current Congress has now adjourned, with the new one to take office tomorrow at noon. This means that Congress will not consider a bill to bring relief to areas affected by Hurricane Sandy until the new Congress takes office, a move that representatives from both parties have denounced. Although a spokesman for House Speaker John Boehner assured the public that he committed to getting a Sandy relief bill passed, Rep. Michael Grimm (R-N.Y.) called the move “a personal betrayal”. Although the Senate had passed a $60 billion bill for relief efforts, legislation does not carry over from Congress to Congress, so when the new Congress convenes tomorrow, lawmakers will have to craft a new bill from scratch.

Information from BBC News, CNN, Fox News, MSNBC, and USA Today.

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3 Responses to Congress Passes Last-Minute Fiscal Cliff Deal

  1. AuntLeesie says:

    It’s felt a lot like a heated game of chess… like a game between political parties… and my guess is many Americans are tiring of the games. The 11th hour decision was to be expected since most politicans want to be re-elected if possible, regardless of party. Individuals and families would be well served to establish sensible budgets (as we all have been), adopt new spending and saving habits (ditto), and do our best to become self-sufficient enough whenever possible so that we can avoid fear/worry regardless of what politicians do or don’t do. Let’s push to pass laws to eliminate lobbyists entirely, require gas & oil companies to be regulated and taxed as any other public service/utility (given their effect on the price of virtually everything), and hold our elected officials more accountable than we have been. We’ve grown lazy and complacent; when we the people are fed up enough, we’ll demand change or create change in our own lives enough to be able to thumb our noses at political game-playing. Just my not-so-humble opinion as a 30+ year non-partisan/undeclared voter. FWIW.

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