At midnight when revelers in Times Square and the rest of the Eastern Time zone were celebrating 2013, the United States officially went over the fiscal cliff. No bill averting the cliff had been enacted and signed into law. Taxes increased on every American at midnight Eastern.
That said, at midnight, staff members of the United State Senate were busy drafting a bill for Senators to who spent their New Year Eve in the Capitol to vote on. Earlier in the evening Senate Democrats, Republicans, and the White House came to an agreement to avert the fiscal cliff retroactively. The bill was passed in the wee hours of the morning by the Senate on a rare and shocking bipartisan 89-9 vote.
The bill now goes to the Republican House where it faces tougher sledding.
The bill only came together because Vice-President Biden and Senate Republican Leader Mitch McConnell (R-KY) came together and hammered out a deal that both parties in the Senate would vote for. The bill was a true compromise. No one was happy, both sides gave ground, but as Senator Kay Bailey Hutchinson (R-TX) said on NBC the give and take was “even.” Senator Mitch McConnell said on the floor it was not perfect but the Senate did something good for America.
Three Democrats and five Republicans voted no. These included Senators Bennett
(D-CO), Harkin (D-IA), Carper (D-DE), Grassley (R-IA), Mike Lee (R-UT), Rand Paul (RTP-KY), Rubio (RTP-FL), and Shelby (R-AL). Senator De-Mint (R-SC) who resigned did not vote, nor did Sen. Lautenberg (D-NJ).
Compromise is what the American people wanted Congress to do. They did it. In compromise, not one gets everything they want. President Obama has been saying that since the negotiations began. The bill was not perfect, not big, not bold, and kicked the can down the road on many issues, but it did what had to be done to pull us back up over the cliff and avoid 98.6% of Americans from getting a tax increase.
The bill turned the Bush tax cuts into the Obama tax cuts. It cut taxes for all incomes under $400,000 for individuals and $450,000 for couples. Incomes in excess of that stay the same as they are as of Tuesday--39.6%. These rates are now permanent It raised dividend taxes on those earning over $450,000, and raised the inheritance tax on estates over $5,000,000, $10,000,000 for a family estate. It eliminated the Alternate Minimum Tax.
The tax credits Obama enacted to help middle class families including child credits, student tax credits, and other credits enacted as part of the stimulus were extended for 5 years. The tax credit for renewable energy was extended as were the credits for research. These were targeted for elimination by Republicans but important to President Obama. No cuts were made to Social Security, Medicaid, or Medicare in this bill.
The massive spending cuts called the sequestration were postponed but only for two months. The $24 billion dollar cost was split 50-50 between spending cuts and new revenues on converting IRAs to Roth IRAs. This will give the new Congress time to rearrange those cuts so they will not be so draconian. They were deliberately made that way in 2011 to force Congress to do something reasonable. Maybe this time they will.
The bill did not deal with new spending cuts, nor did it raise the debt ceiling even though we reached that ceiling on New Years Eve. Those are fights yet to come.
All eyes are on the House which meets at 1:30 Tuesday to act on the bill. Speaker Boehner said the House would either pass or amend the bill indicating it would get a vote. Nothing is certain. Speaker Boehner could not get his own bill to raise taxes on only incomes over $1,000,000 would pass, however the 89-9 Senate vote may have sent House Republicans a message.
If they do not pass it, or if the two Houses can not agree on any amendments, the full affects of the cliff we already went over will take affect. This could hurt the stock market Wednesday.
So, we went over the cliff but there may be a rope to pull us up. It is up to the House.
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