At 10:57 p.m. New Year’s night, the House of Representatives recorded the passage of the American Taxpayer Relief Act of 2012, commonly known as the Fiscal Cliff Bill. Its final vote stood at 257 in favor and 167 against the compromise overwhelmingly advanced by the Senate in an 89 to 8 vote earlier that day. Notably, all Pennsylvania members of Congress supported the bipartisan compromise.
President Obama credited hard work by members of Congress and Vice President Joe Biden for the bill’s passage. It lays out the tax side or revenues in the fiscal equation and makes those measures effective as of December 31, 2012, prior to the Jan. 1 fiscal deadline, when automatic federal tax increases and across the board spending cuts were scheduled to go into effect.
Because Congress could not reach a consensus on budget cuts, the spending half of the solution to the national deficit must be tackled over the next couple of months in the new session of Congress. Those upcoming debates should prove quite a christening of newly elected members.
For now, the Obama administration expresses satisfaction that lower and permanent income tax rates "protect 98% of Americans and 97% of small business owners from a middle class tax hike.” The president added, “Tonight’s agreement does even more by asking millionaires and billionaires to begin to pay their fair share for the first time in 20 years. As promised, that increase will be immediate and it will be permanent.”
Tax hikes starts at incomes of about $199,175 - $225,000 for married taxpayers filing separately, $398,350 - $400,000 for a single taxpayer, $398,350 - $420,000 for a head of household, and $398,350 - $450,000 for a head of household taxpayer and the rate maxes out at 39.6%. The capital gains tax increases to 20% at similar income levels. Estate tax rates will rise to a maximum of 40%, but excludes the first $5 million.
On the other hand, the elimination of the 2012 payroll tax reduction impacts most wage earners, including the self-employed. It raises OASDI taxes from 4.2% to 6.2% up to the maximum Social Security wage base in 2013 of $113,700. These features combined with the elimination of a few more tax deductions, mostly targeting the wealthy, go a long way toward reducing the national deficit.
Good news rest in more than 30 temporary tax relief features made retroactive to the beginning of 2012, the current child tax credit made permanent, the earned income credit made permanent or extended 5 years, and the American Opportunity Tax Credit extended 5 years, among other individual extensions. Many business tax credits (such as the Production Tax Credit) were extended 1 year, and 50% of capital investments made next year can be written off immediately.
Also qualifying as good news are the 1-year extension of emergency unemployment benefits to about 2 million job seekers and a sustainable growth rate formula that avoids a 27% cut in reimbursements to doctors of Medicare patients through next year. When it comes to Congressional salaries, the public may be the only ones viewing the hold on increases as good news.
Although striking a compromise left all law makers wonting, the entire package contributes $620 billion toward reducing the nation’s deficit, according to Obama. Obama signed the bill electronically, today, while vacationing in Hawaii. This comes on top of $1 trillion in spending cuts signed into law last year. The stock market seemed to react favorably to the news, closing yesterday on an uptick.
One fact that may temper the sweet smell of a successful compromise is how much the House vote persisted in falling along party lines. Speaker of the House John Boehner (R-Ohio) failed to pull a majority of Republicans to the compromise for which he, recent Republican vice presidential candidate Paul Ryan, and 83 fellow Republicans voted.
Most House Republicans (151 of them) stood with Majority Leader Eric Cantor (R-Va.) and Majority Whip Kevin McCarthy (R-Calif.) Cantor, for one, opposed any bill that did not cover both taxes and spending cuts. Given this clear schism, how can the public not wonder if a political battle is brewing for House Speaker? Will Boehner have to take a harder line in future negotiations just to remain at the top of the House hierarchy? What, if any, laws will get passed should partisan politics regain the forefront?
Whatever the divide portends, everyone can probably agree more fiscal challenges lie ahead. “Now the focus turns to spending,” states Boehner. “The American people re-elected a Republican majority in the House, and we will use it in 2013 to hold the president accountable for the ‘balanced’ approach he promised, meaning significant spending cuts and reforms to the entitlement programs that are driving our country deeper and deeper into debt.”
Obama promises, “I will 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 the top down.”
An agreement on spending is essential to avert automatic cuts waiting over the next fiscal cliff. A vote on the $16 trillion national debt limit follows. Readers may recall Republicans stonewalling the last time the debt limit came up for a vote. Inaction rocked financial markets and lowered global confidence in the good faith and credit of the U.S. government. Obama expressed little tolerance for a repeat performance.
But House inaction, supposedly due to heavy focus on the tax bill, sparked a more recent controversy. The inability of the House to include Hurricane Sandy Relief in Tueday’s priorities as scheduled has many officials, Republicans and Democrats alike, in an uproar and pointing the finger at House Republicans and John Boehner for 2 months of delays.
The controversy prompted Boehner and Cantor to release this joint statement:
“Getting critical aid to the victims of Hurricane Sandy should be the first priority in the new Congress, and that was reaffirmed today with members of the New York and New Jersey delegations. The House will vote Friday to direct needed resources to the National Flood Insurance Program. And, on January 15th, the first full legislative day of the 113th Congress, the House will consider the remaining supplemental request for the victims of Hurricane Sandy.”
Reported amounts of $9 billion in flood insurance and $51 billion in disaster assistance swirls in the center of the controversy. Due to ongoing delays, some victims, trying to recover from Sandy, may feel they have already fallen over a fiscal cliff, not of their own making. New Jersey Governor Christie said he does not trust what House Republicans say because his confidence in them is lost.
All rights to this article are reserved by Gloria Blakely. Copyright 2013.