America Dodges Fiscal Cliff
Barrington M. Salmon | 1/2/2013, 7:50 a.m.
House Could Still Oppose Deal
After months of intense negotiations between senior members of both political parties, America toppled over the "fiscal cliff" at midnight Monday.
Vice President Joe Biden and Senate Majority Leader Mitch McConnell (R-Ky.) were able to broker a last-minute deal. However, House members are yet to vote on the deal. They were scheduled to do that on New Year's Day. The House is still the wild-card in this scenario because of disaffected Democrats, conservatives and Tea Party members who are vehemently opposed to any tax increases and could still scuttle the deal.
They will have to decide if they are willing to put their support behind a deal that increases taxes significantly for the first time in 20 years.
With a deal in place, the effects of the cliff will be minimal because Congress will likely retroactively implement provisions of the deal if the House agrees to it.
The deal passed in the Senate by an 89-8 margin. The House was expected to consider the measure Tuesday afternoon.
On New Year's Eve, President Barack Obama appeared at a White House event where he told an audience of middle-class Americans that a deal was "within sight."
"...I realize that the last thing you want to hear on New Year's Eve is another speech from me, but I do need to talk about the progress that's being made in Congress today," Obama said. "For the last few days, leaders in both parties have been working toward an agreement that will prevent a middle-class tax hike from hitting 98 percent of all Americans starting tomorrow. Preventing that tax hike has been my top priority, because the last thing folks ... [like the ones] on this stage can afford right now is to pay an extra $2,000 in taxes next year. Middle-class families can't afford it. Businesses can't afford it. Our economy can't afford it."
Obama said there were still differences to be ironed out but he hoped Congress would get it done.
Among the provisions of the Biden-McConnell deal are no tax hikes for middle-class families; extension of tax credits for families with children; the availability of tuition tax credits; tax credits for clean energy companies creating jobs and reducing America's dependence on foreign oil; and a continuation of unemployment insurance for the two million Americans still actively looking for work.
The deal appears to have averted a series of automatic spending cuts and tax increases scheduled to go into effect on Jan. 1. There are more than $100 billion in automatic cuts to defense and domestic government spending now, and as well as $400 billion in tax hikes precipitated by the expiration of income tax breaks, such as the alternative minimum tax, the temporary payroll tax cut and others adopted during the Bush administration.
The average household would have seen an estimated annual increase in taxes of $3,500.
Late Monday afternoon, what was described as "fast-moving" negotiations between Biden and McConnell led to an agreement to raise estate taxes from 35 to 40 percent with a $5 million threshold, and increase taxes for individuals making more than $400,000 a year, and couples making more than $450,000 annually. In addition, families making $300,000 a year and individuals earning more than $250,000 will no longer be able to claim past exemptions and itemized deductions.