WASHINGTON: The Senate passed
legislation early New Year’s Day to neutralise a fiscal cliff combination of
across-the-board tax increases and spending cuts that kicked in at midnight.
The pre-dawn vote was 89-8.
Senate passage set the stage for
a final showdown in the House of Representatives, where a vote was expected
later on Tuesday or perhaps on Wednesday.
Without legislation, economists
in and out of government had warned of a possible new recession and spike in
unemployment if the fragile U.S. economy were allowed to fall over the
so-called fiscal cliff of tax increases and spending cuts.
Even by the recent dysfunctional
standards of government-by-gridlock, the activity at both ends of historic
Pennsylvania Avenue was remarkable as the Obama administration and lawmakers
spent the final hours of 2012 haggling over long-festering differences.
“It shouldn’t have taken this
long to come to an agreement, and this shouldn’t be the model for how we do
things around here,” said Senate Republican leader Mitch McConnell, who
negotiated the agreement with Vice President Joe Biden, a former senator.
Under the deal, taxes would
remain steady for the middle class and rise at incomes over $400,000 for
individuals and $450,000 for couples levels higher than President Barack Obama
had campaigned for in his successful drive for a second term in office.
Spending cuts totaling $24
billion over two months aimed at the Defence Department and domestic programs
would be deferred. That would allow the White House and lawmakers’ time to
regroup before plunging very quickly into a new round of budget brinkmanship
certain to revolve around Republican calls to rein in the cost of the Medicare
health care program for the elderly and other government benefit programs.
Officials also decided at the
last minute to use the measure to prevent a $900 pay raise for lawmakers due to
take effect this spring.
“One thing we can count on with
respect to this Congress is that if there’s even one second left before you
have to do what you’re supposed to do, they will use that last second,” the
President said in a mid-afternoon status update on the talks.
As darkness fell on the last day of
the year, Obama, Biden and their aides were at work in the White House, and
lights burned in the House and Senate. Democrats complained that Mr. Obama had
given away too much in agreeing to limit tax increases to incomes over
$450,000, far above the $250,000 level he campaigned on. Yet some Republicans
recoiled at the prospect of raising taxes at all.
Democratic senators
overwhelmingly supported the measure after being briefed at a closed-door
session at the Capitol with Biden.
“The argument is that this is the
best that can be done on a bipartisan basis,” said Democratic Sen. Dianne
Feinstein, when asked about the case the Vice President had made.
Passage sends the measure to the
House, where Speaker John Boehner refrained from endorsing a package as yet
unseen by his famously rebellious rank-and-file. He said the House would not
vote on any Senate-passed measure “until House members and the American people
have been able to review” it.
Numerous Republican officials
said McConnell and his aides had kept the speaker’s office informed about the
progress of the talks.
The House Democratic leader, Rep.
Nancy Pelosi, issued a statement saying that once the legislation cleared the
Senate, “I will present it to the House Democratic caucus.”
And while the nominal deadline
for action passed at midnight, Obama’s signature on legislation by the time a
new Congress takes office at noon on Jan. 3, 2013 the likely timetable would
eliminate or minimize any inconvenience for taxpayers.
Tax rate cuts enacted in 2001 and
2003 during President George W. Bush’s administration were set to expire at the
end of the year. The pending across-the-board reductions in government
spending, which would slice money out of everything from social programs to the
military, were put in place last year as an incentive to both parties to find
ways to cut spending. That solution grew out of the two parties’ inability in
2011 to agree to a grand bargain that would have taken a big bite out of the
deficit.
If Obama and Congress failed to
act, about $536 billion in tax increases, touching nearly all American workers,
and about $110 billion in spending cuts, about 8 per cent of the annual budgets
for most federal departments, were scheduled to go into effect beginning in
January.
A late dispute over the estate
tax produced allegations of bad faith from all sides.
Earlier, McConnell had agreed
with Obama that an overall deal was near. In remarks on the Senate floor, he
suggested Congress move quickly to pass tax legislation and “continue to work
on finding smarter ways to cut spending” next year.
The White House and Democrats
initially declined the offer, preferring to prevent the cuts from kicking in at
the Pentagon and domestic agencies alike. A two-month compromise resulted.
Officials in both parties said
the agreement would prevent tax increases at incomes below $400,000 for
individuals and $450,000 for couples.
At higher levels, the rate would
rise to a maximum of 39.6 per cent from the current 35 per cent. Capital gains
and dividends in excess of those amounts would be taxed at 20 per cent, up from
15 per cent.
The deal would also raise taxes
on the portion of estates exceeding $5 million to 40 per cent. At the
insistence of Republicans, the $5 million threshold would rise each year with
inflation.
Much or all of the revenue to be
raised through higher taxes on the wealthy would help hold down the amount paid
to the Internal Revenue Service by the middle class.
In addition to preventing higher
rates for most, the agreement would retain existing breaks for families with
children, for low-earning taxpayers and for those with a child in college.
Also, the two sides agreed to prevent the alternative minimum tax from
expanding to affect an estimated 28 million households for the first time in
2013, with an average increase of more than $3,000. The law originally was
designed to make sure millionaires did not escape taxes, but inflation has
gradually exposed more and more households with lower earnings to its impact.
The legislation leaves untouched
a scheduled 2 percentage point increase in the payroll tax, ending a temporary
reduction enacted two years ago to help revive the economy.
Officials said the White House
had succeeded in gaining a one-year extension of long-term unemployment
benefits about to expire for an estimated two million jobless.
The legislation also prevents a
27 per cent cut in fees for doctors who treat Medicare patients.
Also included is a provision to
prevent a threatened spike in milk prices after the first of the year.
Even as time was running out,
partisan agendas were evident.
The White House and Congress had
spent the seven weeks since the Nov. 6 elections struggling for a compromise to
protect the economy.
Obama used his appearance at the
White House not only to chastise Congress, but also to lay down a marker for
the next round of negotiations early in 2013, when Republicans intend to seek
spending cuts in exchange for letting the Treasury to borrow above the current
debt limit of $16.4 trillion.
“Now, if Republicans think that I
will finish the job of deficit reduction through spending cuts alone and you
hear that sometimes coming from them ... then they’ve got another think coming.
... That’s not how it’s going to work at least as long as I’m President,” he
said.
“And I’m going to be President
for the next four years, I think,” he added.
Obama’s remarks irritated some
Republicans.
Sen. John McCain of Arizona they
would “clearly antagonize members of the House.”
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