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Cliff avoided: Congress staves off tax hikes

Wednesday - 1/2/2013, 3:10am  ET

President Barack Obama and Vice President Joe Biden makes a statement regarding the passage of the fiscal cliff bill in the Brady Press Briefing Room at the White House in Washington, Tuesday, Jan. 1, 2013. (AP Photo/Charles Dharapak)

ALAN FRAM
Associated Press

WASHINGTON (AP) -- Past its own New Year's deadline, a weary Congress sent President Barack Obama legislation to avoid a national "fiscal cliff" of middle class tax increases and spending cuts late Tuesday night in the culmination of a struggle that strained America's divided government to the limit.

The bill's passage on a bipartisan 257-167 vote in the House sealed a hard-won political triumph for the president less than two months after he secured re-election while calling for higher taxes on the wealthy.

Moments later, Obama strode into the White House briefing room and declared, "Thanks to the votes of Republicans and Democrats in Congress I will sign a law that raises taxes on the wealthiest 2 percent of Americans while preventing tax hikes that could have sent the economy back into recession."

He spoke with Vice President Joe Biden at his side, a recognition of the former senator's role as the lead Democratic negotiator in final compromise talks with Senate Republican Leader Mitch McConnell of Kentucky.

In addition to neutralizing middle class tax increases and spending cuts taking effect with the new year, the legislation will raise tax rates on incomes over $400,000 for individuals and $450,000 for couples. That was higher than the thresholds of $200,000 and $250,000 that Obama campaigned for. But remarkably, in a party that swore off tax increases two decades ago, dozens of Republicans supported the bill at both ends of the Capitol.

The Senate approved the measure on a vote of 89-8 less than 24 hours earlier, and in the interim, rebellious House conservatives demanded a vote to add significant spending cuts to the measure. But in the end they retreated.

The measure split the upper ranks of the Republican leadership in the House.

Speaker John Boehner of Ohio voted in favor, while Majority Leader Eric Cantor of Virginia and California Rep. Kevin McCarthy, the party's whip, opposed the bill. Rep. Paul Ryan of Wisconsin, the party's 2012 vice presidential candidate, supported the measure.

Supporters of the bill in both parties expressed regret that it was narrowly drawn, and fell far short of a sweeping plan that combined tax changes and spending cuts to reduce federal deficits. That proved to be a step too far in the two months since Obama called congressional leaders to the White House for a postelection stab at compromise.

Already, both sides were maneuvering for the next round in a seemingly ceaseless struggle about taxes and spending.

In a statement after the vote, Boehner said, "Now the focus turns to spending. 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."

Majority Republicans did their best to minimize the bill's tax increases, just as they abandoned their demand from earlier in the day to add spending cuts to the package.

"By making Republican tax cuts permanent, we are one step closer to comprehensive tax reform that will help strengthen our economy and create more and higher paychecks for American workers," said Rep. Dave Camp of Michigan, chairman of the tax-writing House Ways and Means Committee.

He urged a vote for passage to "get us one step closer to tax reform in 2013" as well as attempts to control spending.

House Democratic Leader Nancy Pelosi also said the legislation included "permanent tax relief for the middle class," and she summoned lawmakers to provide bipartisan support as the Senate did.

The bill would also prevent an expiration of extended unemployment benefits for an estimated 2 million jobless, block a 27 percent cut in fees for doctors who treat Medicare patients, stop a $900 pay increase for lawmakers from taking effect in March and head off a threatened spike in milk prices.

It would stop $24 billion in across-the-board spending cuts set to take effect over the next two months, although only about half of that total would be offset with savings elsewhere in the budget.

The economic as well as political stakes were considerable.

Economists have warned that without action by Congress, the tax increases and spending cuts that technically took effect with the new year could send the economy into recession.

Even with enactment of the legislation, taxes are on the rise for millions.

A 2 percentage point temporary cut in the Social Security payroll tax, originally enacted two years ago to stimulate the economy, expired with the end of 2012. Neither Obama nor Republicans made a significant effort to extend it.

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