By Miriam Raftery
January 2, 2013 (San Diego’s East County ) – By a 257-167 vote late last night, the House of Representatives approved without changes a “fiscal cliff” deal previously passed by the Senate 89-8.
The stock market reaction to ending the uncertainty was positive, rising 235 points or 1.9% on January 1 for a second-straight day of triple digit gains. It’s a deal that reflects compromise on both sides, averting a potential crisis short-term, but deferring major decisions on spending cuts and raising the nation's debt ceiling down the road.
The decision divided the Republican leadership, as well as the local Congressional delegation. Lame-duck Republican Congressman Brian Bilbray joined with Democrat Susan Davis in voting for the measure, while Republicans Duncan Hunter and Darrell Issa voted against it. (Bob Filner resigned his seat Dec. 3 to assume his new responsibilities as Mayor, leaving his seat vacant until Juan Vargas is sworn in later this month.)
“I can’t account for what happens after midnight in all that partying and revelry and drinking that goes on on New Year’s Eve,” Issa told CNN host Wolf Blitzer, adding, “What I can tell you is they did half a bill.”
Issa and others who opposed the measure wanted to see more spending cuts and object to delaying sequestration by two months as well as failing to reach a decision on the debt ceiling limit.
Passage means automatic sequestration cuts across the board and widespread tax increases will not occur, though individuals earning over $400,000 a year and families earning over $450,000 will pay more in income taxes. For those earning less, the Bush tax cuts will be extended and made permanent.
President Obama praised the action. “Thanks to the votes of Democrats and Republicans in Congress, I will sign a law that raises taxes on the wealthiest 2 percent of Americans while preventing a middle-class tax hike that could have sent the economy back into recession and obviously had a severe impact on families across America….Under this law, more than 98 percent of Americans and 97 percent of small businesses will not see their income taxes go up.”
Uemployment insurance will be extended another year for those who have been out of work for 26 weeks or more.
The bill expands some tax credits for poor and middle class Americans including those for childcare and tax credits for college tuition. The Earned Income Tax Credit was also expanded to help the working poor.
The bill avoids a 27% cut to reimbursements for doctors seeing Medicare patients.
Tax breaks for some businesses will be extended. A stopgap extension of farm supports will prevent a spike in milk prices.
The wind industry production tax credits were not only extended for another year, but now wind developers need only start construction—not complete it—to qualify for the funds.
Republicans won some concessions, such as setting the estate tax at 40 percent for the wealthiest 2 percent of Americans and indexing that threshold to inflation. Congress will have its pay frozen.
The payroll tax holiday will also expire, as Republicans wanted. That means 70% of wage earners will actually have their payroll tax deductions INCREASE, despite Republican claims that they did not raise taxes. The average family earning $50,000 will actually see their income reduced by $20 a week.
Republicans have sought cuts in “entitlements” meaning Social Security and Medicare benefits, but dramatic cuts in those programs have been opposed by Democrats.
Despite lip service to cutting unnecessary expenditures, the bill still contains giveaways to corporate interests, notably a subsidy for Goldman-Sachs headquarters, subsidy extensions for Hollywood studios, tax exclusions for U.S. corporations doing business overseas, and a $9 billion offshore tax loophole for banks.
Speaker John Boehner allowed an up-or-down vote in the House on the Senate’s measure after Republicans in the House who wanted to amend the measure with spending cuts failed to reach agreement. Boehner was joined by prominent Republicans such as Paul Ryan, while others such as Eric Cantor voted against the bill. Speaker Boehner warned his colleagues that changing the bill could leave the Republicans open to being blamed for massive tax hikes and painful sequestration spending cuts if the Senate failed to support the revised bill.
With Bush tax cuts expired on December 31, 2012, even tax hawk Grover Norquist conceded that voting for the fiscal cliff bill did not constitute a tax hike, since by delaying the vote by a day, the House was actually voting for tax cuts for many Americans, while allowing the expired cuts to stand for the wealthiest Americans.
The bill is expected to bring in $600 billion in revenues from higher taxes on the wealthy. Obama had sought to raise taxes on those earning over $250,000 (not $400,000).
Financial experts say the measure will likely prevent the nation from falling back into recession, but the measure’s key flaw it is its failure to rein in the deficit as the debt ceiling limit draws near to expiring.
For more information, see these resources:
Both sides get wins in tax deal (The Hill): thehill.com
Fiscal cliff averted: Now what? (CBS): cbsnews.com
Congress passes cliff deal : hard fought fight avoids broad tax hikes, spending cuts, but puts off major issues (Wall Street Journal) online.wsj.com/article
Washington Post Wonkblog:Everything you need to know about the fiscal cliff deal
Statement by the President: whitehouse.gov/the-press-office
White House blog: What you need to know about the fiscal cliff deal
House roll call: How they voted
Eight corporate subsidies in the fiscal cliff bill (Huffington Post): huffingtonpost.com