House Speaker John Boehner, a Republican from Ohio, has repeatedly failed to cut a deal with President Obama or Senate Democrats, waiting instead for the White House and Senate to lead the way.
Fiscal cliff bill passes Senate
President Obama, who cut his year-end vacation in his home state of Hawaii short to return to Washington to take the speaker up on his challenge, has done just that. With the help of Vice President Biden, a decades long veteran of the Senate, an agreed upon bill— An act entitled the "American Taxpayer Relief Act of 2012"—that would avoid the so-called fiscal cliff, the combination of austere across the board spending cuts and income tax hikes on everyone that is set to take effect on the first day of 2013, was voted on in the wee hours of Tuesday morning. Passing with 89 votes versus 8 votes—3 Democrats and 5 Republicans—against it, the measure now moves to the House of Representatives, where similar support is uncertain at best and the probability of disapproval remains high.
The eight no votes came from Senators Marco Rubio, Richard Shelby, Rand Paul, Charles Grassley and Mike Lee, all Republicans, and Democrats Michael Bennett, Tom Harkin and Tom Carper.
White House statement
The White House issued a statement following the big vote that outlined why 89 Senators stepped up to support it.
"Leaders from both parties in the Senate came together to reach an agreement that passed with overwhelming bipartisan support today that protects 98 percent of Americans and 97 percent of small business owners from a middle class tax hike. While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay.
"This agreement will also grow the economy and shrink our deficits in a balanced way – by investing in our middle class, and by asking the wealthy to pay a little more.
"What's more, today's agreement builds on previous efforts to reduce our deficits. Last year, I worked with Democrats and Republicans to cut spending by more than $1 trillion. Tonight’s agreement does even more by asking millionaires and billionaires to begin to pay their fair share for the first time in twenty years. As promised, that increase will be immediate, and it will be permanent.
"There’s more work to do to reduce our deficits, and I’m willing to do it. But tonight’s agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans. And as we address our ongoing fiscal challenges, I will continue to fight every day on behalf of the middle class and all those fighting to get into the middle class to forge an economy that grows from the middle out, not from the top down."
Can Speaker Boehner deliver?
House Speaker John Boehner has declined to endorse the agreement, CBS reported, although he's promised a vote on it or a GOP alternative right away.
Speaker Boehner, who has always had trouble corralling members of his far right Tea Party caucus, is expected to encounter opposition from them again on this bill. Washington watchers wonder aloud whether the speaker will bring it to a vote if he doesn't have enough Republicans to back him, which if he doesn't he must rely on House Democrats to do the work his own caucus is unwilling to do even in the face of markets that would show their disappointment, not to mention American voters who want the dueling parties to compromise for the sake of the nation.
The Congressional Budget Office scored the bill Tuesday and determined it adds $3.9 trillion to the nation's accumulated debt, a fact that will not be lost of Tea Party Republicans who demand cuts in government spending now.
The extension of lower tax rates for a bulk of the nation's taxpayers and adding a permanent patch to the alternative minimum tax would add roughly $3.6 trillion to the deficit over the next decade, the CBO said, according to The Hill.
Other individual, business, and energy tax extenders would add another $76 billion, Hill reporter Peter Schroeder wrote. The extension of unemployment benefits would cost roughly $30 billion, and the so-called "doc fix" would tally another $25 billion through fiscal 2022.
Following the president statement, the White House issued a fact sheet on the Senate agreement.
White House fact sheet
At this make or break moment for the middle class, the President achieved a bipartisan solution that keeps income taxes low for the middle class and grows the economy. For the first time in 20 years, Congress will have acted on a bipartisan basis to vote for significant new revenue. This means millionaires and billionaires will pay their fair share to reduce the deficit through a combination of permanent tax rate increases and reduced tax benefits. And this agreement ensures that we can continue to make investments in education, clean energy, and manufacturing that create jobs and strengthen the middle class.
In 2011, the President cut spending. In 2012, he kept his promise of asking the wealthiest 2 percent of Americans to pay more while protecting 98 percent of families and 97 percent of small businesses from any income tax increase—raising $620 billion in revenue. As we move forward to address our ongoing fiscal challenges, both spending cuts and continuing to ask the wealthy to do a little more will be part of a balanced approach. It is critical for our economy and future generations that we reduce the deficit. We cannot keep racking up this debt on our kids. And the President looks forward to working with Republicans to reduce the deficit in a balanced and bipartisan way.
—Permanently extends the middle-class tax cuts and also extends credits for working families, with additional measures to protect families and promote economic growth.
—Permanent extension of the middle class tax cuts: This will provide certainty for 114 million households including lower tax rates, an expanded Child Tax Credit, and marriage penalty relief—steps that together will prevent the typical family of four from seeing a $2,200 tax increase next year. In addition, it includes a permanent Alternative Minimum Tax (AMT) fix.
—Most progressive income tax code in decades: By raising income tax rates on the wealthiest and keeping taxes low for the middle class, the agreement will ensure we have the most progressive income tax code in decades.
—Extension of Emergency Unemployment Insurance benefits for 2 million people: The agreement will prevent 2 million people from losing UI benefits in January by extending emergency unemployment insurance benefits for one year.
—Extension of tax cuts for 25 million working families and students: The deal extends President Obama’s expansions of the Child Tax Credit, Earned Income Tax Credit, and the President’s new American Opportunity Tax Credit, which helps families pay for college. The President fought hard to extend these credits, overcoming Republican insistence that income taxes go up by an average of $1,000 for 25 million working families and students. The agreement would extend them for five years.
—Extension of renewable energy incentives, the R&E tax credit and other business incentives: The agreement extends tax relief for businesses through the end of next year. This means extending the Production Tax Credit, a key incentive for renewable energy that many Republicans had been trying to end, as well as the Research & Experimentation tax credit. In addition, the agreement extends 50 percent bonus depreciation, a cost-effective temporary measure to support investment and growth. All of these would be extended through the end of 2013.
—Fixes the SGR (“doc fix”) with no cuts to the Affordable Care Act or to beneficiaries: The agreement avoids a 27 percent cut to reimbursements for doctors seeing Medicare patients for 2013 by fixing the sustainable growth rate formula through the end of next year (the “doc fix”). The President stood firm against Republican proposals to pay for this fix with cuts to the Affordable Care Act or the beneficiaries.
—Postpones the sequester for two months, paid for with $1 of revenue for every $1 of spending, with the spending balanced between defense and domestic: The agreement saves $24 billion, half in revenue and half from spending cuts which are divided equally between defense and nondefense, in order to delay the sequester for two months. This will give Congress time to work on a balanced plan to end the sequester permanently through a combination of additional revenue and spending cuts in a balanced manner.
—Raises $620 billion in revenue according to Congress’ Joint Committee on Taxation by achieving the President’s goal of asking the wealthiest 2 percent of Americans to pay more while protecting 98 percent of families and 97 percent of small businesses from any income tax increase.
—Restores the 39.6 percent rate for high-income households, as in the 1990s: The top rate would return to 39.6 percent for singles with incomes above $400,000 and married couples with incomes above $450,000.
—Capital gains rates for high-income households return to Clinton-era levels: The capital gains rate would return to what it was under President Clinton, 20 percent. Counting the 3.8 percent surcharge from the Affordable Care Act, dividends and capital gains would be taxed at a rate of 23.8 percent for high-income households. These tax rates would apply to singles above $400,000 and couples above $450,000.
—Reduced tax benefits for households making over $250,000 (for singles) and $300,000 (for couples): The agreement reinstates the Clinton-era limits on high-income tax benefits, the phaseout of itemized deductions (“Pease”) and the Personal Exemption Phaseout (“PEP”), for couples with incomes over $300,000 and singles with incomes over $250,000. These two provisions reduce tax benefits for high-income households. This sets the stage for future balanced approaches to deficit reduction, which could include additional revenue through tax reforms that reduce tax benefits for Americans making over $250,000.
—Raises tax rates on the wealthiest estates: The agreement raises the tax rate on the wealthiest estates – worth upwards of $5 million per person – from 35 percent to 40 percent, in contrast to Republican proposals to continue the current estate tax levels.
—The agreement’s $620 billion in revenue is 85 percent of the amount raised by the Senate-passed bill, if that bill had been enacted and made permanent: The agreement locks in $620 billion in high-income revenue over the next ten years. In contrast, the bill passed by Democrats in the Senate achieved approximately $70 billion through one-year provisions; these same provisions could have raised a total of $715 billion over ten years if Congress acted again to extend it permanently. However, the Senate bill itself locked in only one year’s worth of savings so would have required additional extensions to achieve those savings.
—Part of a balanced process of deficit reduction and stronger growth.
—Strengthens our recovery next year by cutting taxes for the middle-class: The independent, non-partisan Congressional Budget Office (CBO) estimated that allowing the full effect of the “fiscal cliff” would cause our economy to enter a recession and actually shrink next year primarily as a result of higher taxes on the middle class and across-the-board spending cuts. The final agreement prevents taxes from rising on the middle class and delays the across-the-board “sequester.”
—Temporary measures to support consumer spending and business investment: Extending unemployment insurance is one of the more effective ways to encourage consumer spending. And bonus depreciation will give companies incentives to invest.
—Provides greater economic certainty for families and businesses: The agreement will make it easier for families and businesses to plan and will help our economy grow.
—Cuts the deficit and reduces the debt as a share of the economy over the next five years: Since April last year, the President has signed into law 1.7 trillion in deficit reduction, including $700 billion in spending cuts from enacted appropriations bills in 2011 and 2012, and $1 trillion in the Budget Control Act. This tax agreement not only further reduces the deficit, but raises $620 in new revenue from high-income households. Together with a strengthening economy these steps will bring down the deficit as a share of the economy over the next five years.
—Establishes a foundation for additional balanced, pro-growth deficit reduction through tax and entitlement reform: The agreement leaves substantial scope for reducing tax expenditures for high-income households, reforming corporate taxes to broaden the base and cut the rate to make America more competitive, and to take further steps to reform entitlements.
—Extends the farm bill through the end of the fiscal year, averting a sharp rise in milk prices at the beginning of 2013.
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