US House OK Of Tax/Budget Bill Averts Fiscal Cliff, But Debt Ceiling Battle Looms

The U.S. House of Representatives voted late Tuesday to avert the fiscal cliff by supporting a Senate measure to hike income tax rates on only the wealthiest adults. The vote passed the House largely along party lines, 257 to 167. It is the first income tax rate increase in the United States in 20 years.

The vote was a compromise that taxpayers were hoping to see from Congress as they held their breath -- hoping that lawmakers would put the nation before politics. It also ended days of grueling deliberations between Democrats and Republicans, who have been seeking an agreement for nearly two months.

"This law is just one step in our broader efforts to strengthen our economy," President Barack Obama said in a press conference afterward. He added that there is more unnecessary spending that must be eliminated.

The House caucus began meeting around 1 p.m. EST Tuesday to review the Senate compromise that passed 89 to 8 with a tax increase on high-income adults. The bill, though imperfect from the Democrats' view, kept President Barack Obama’s campaign promise to reap new revenue from the wealthy to reduce the deficit.

What's more, the bipartisan support for the deal was perhaps a Senate Republican signal to uneasy House GOP members. The House faced a difficult choice: push for more spending cuts or save 98 percent of Americans and 97 percent of businesses from a tax increase.

House Republicans were initially turned off by the agreement because it didn't address spending. House Speaker John Boehner, R-Ohio, gave his caucus the option of amending the Senate bill to reflect $300 billion in spending cuts or vote for the clean bill. In the end, the caucus opted for a straight up/down vote on the Senate-approved bill, after Boehner warned the caucus that the Senate may not take up an amended bill -- and push the United States over the fiscal cliff -- with the American people likely placing most of the blame on the Republican Party. Once that undeniable reality sunk it, the caucus agreed to hold an up/down vote with no amendments.

The fiscal cliff negotiations began with President Barack Obama and Boehner in mid-November. However, shortly after Obama's re-election, talks became deadlocked after two weeks. By early December talks completely broke down and Vice President Joe Biden and Senate Minority Leader Mitch McConnell had to step in to broker the deal that avoided the massive, automatic $600 billion in spending cuts and tax increases planned for 2013 that most likely would have tipped the U.S. economy back into a recession.

What's Inside The Senate Fiscal Cliff Bill

Under the Senate bill, taxes go up for individuals earning more than $400,000 or couples making more than $450,000. The current 35 percent tax rate they now enjoy will revert to the 39.6 percent of the Clinton era. Itemized deductions will be capped for individuals making over $250,000 and for joint filers earning $300,000. The estate tax increases from 35 percent to 40 percent, but only on estates worth more than $5 million. The alternative minimum tax is now permanently adjusted for inflation, saving millions of upper-middle-class filers from its snares.

Unemployment insurance is extended for two years, and there are tax credits for tuition, child care, and research and development. Doctors who treat Medicare patients can look forward to their reimbursements, just not from Obamacare, as the bill contains the Medicare "doc fix" that will maintain physicians' fees.

Adding Trillions To Deficit

The fiscal cliff deal will bring in $620 billion in revenue. In its assessment, the non-partisan Congressional Budget Office said the Senate bill will add approximately $4 trillion to the federal deficit over a decade.

However, though compromise won out in the end, American taxpayers will still see a smaller paycheck. The bill didn’t address the payroll tax cut, a 2 percent temporary cut in the payroll tax that finances Social Security. It was originally enacted two years ago and expired the end of last year.

America technically "fell" off the cliff at midnight on Monday, but no effects were seen because Tuesday was a holiday -- New Year's Day.

Aides had predicted earlier on Tuesday that the Senate measure would pass the House with similar bipartisan support. But nothing was certain with the House Republican caucus, which just weeks before had rebuffed a proposal from their Speaker, John Boehner, because it would have increased taxes on incomes above $1 million.

Many House Republicans, led by Majority Leader Eric Cantor of Virginia, balked at the Senate agreement, saying it does nothing to solve America's spending problem. They also said lawmakers were putting off some very important issues like the sequester (delayed for two months) as the debt ceiling deadline approaches.

Little Faith In Congress

America had very little faith in the 112th Congress, which has the lowest approval rating for Congress ever and is considered to the least productive Congress in terms of the number of bills passed. In December, a Gallup poll showed that only 18 percent of Americans approved of the job that Congress was doing as leaders sought a solution to the looming fiscal cliff. The rating was unchanged since November. At the same time, Gallup found that the Republicans’ approval of Congress fell to 14 percent from 16 percent in November, compared with Democrats’ increased approval from 19 percent to 21 percent.

For nearly two months, the fiscal cliff talks were logjammed because of philosophical differences that drove an even greater wedge between Democrats and Republicans than had existed previously. But in the end, both parties realized they had to compromise and give up some pet policies and programs if a deal was going to get done.

Democrats wanted higher taxes on the wealthy and for middle class tax breaks to be preserved. In his opening bid, Obama considered wealthy Americans to be individuals making above $200,000 and households bringing in $250,000. He also said he didn’t want entitlements to be cut, but he was willing to make concessions.

Most Republicans staunchly opposed any tax increases whatsoever and were pushing for entitlement reforms. They also wanted Congress to limit its spending: Tea Party members pushed for large spending cuts.

Fight Not Over

Though Obama and the Democrats won this round by backing the GOP into a corner, there are a couple more rounds to go, as lawmakers work to address the nation's fiscal problem, which has festered basically since the initial Bush income tax cut in 2001 that turned a budget surplus into a budget deficit in one year. The two parties will be at it again in February when they must tackle the debt ceiling. And Democrats and Republicans must take up the sequestration issue in March to prevent $110 billion scheduled spending cuts -- half from the Pentagon and half from non-defense programs.

"Without meaningful reform of entitlements, real spending controls, and a fairer, cleaner tax code, our debt will continue to grow, and our economy will continue to stumble," Boehner said in a press statement. "Republicans stand for a stronger, more prosperous America, rich in opportunity and free of the debt that threatens our children’s future. On this New Year’s Day, we renew our commitment to that vision, humbled by the opportunity to serve.”