PUBLISHED: 12:48 EST, 31 December 2012 | UPDATED: 02:14 EST, 1 January 2013
The U.S. Senate has voted in favor of a deal to keep the nation from falling over the fiscal cliff, with only the Republican-controlled House left to vote on the package.
The vote came about five hours after the White House and congressional Republicans struck a deal.
The vote was an overwhelming 89-8 and came well after midnight on New Year’s Day.
A House vote is expected before Wednesday.
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The White House-backed legislation would prevent middle-class taxes from rising, and raise rates on incomes over $400,000 for individuals and $450,000 for couples.
It also blocks spending cuts for two months, extends unemployment benefits for the long-term jobless, prevents a 27 per cent cut in fees for doctors who treat Medicare patients and prevents a spike in milk prices.
A last-minute addition would also prevent a $900 pay raise for members of Congress from taking effect in March.
Vice President Joe Biden was on hand to sell the measure to Senate Democrats at a meeting at the Capitol on Monday night.
Earlier in the day, President Obama announced that a deal to avert billions of dollars of tax increases that will kick in at midnight is ‘within sight, but it’s not done yet.’
He lamented that he and Congress were unable to reach a ‘grand deal’ to tackle the debt and reform the tax code – but said he would settle for a plan to stop taxes from going up on all but the richest Americans.
‘Our most immediate priority is to prevent taxes from going up on middle class families tomorrow. I think that is a modest goal we can accomplish,’ he said.
Final chance: House Speaker John Boehner of Ohio, left, and House Majority Leader Eric Cantor of Va., right, arrive on Capitol Hill in Washington, on Monday, December 31, 2012 to discuss tax hikes and spending cuts
Several leading Republicans, most notably Sen John McCain, lambasted Obama for what they said was a partisan statement that had set back chances of a deal.
Senator Bob Corker of Tennessee on the Senate floor that his ‘heart was still pounding’ after a ‘very unbecoming’ Obama speech before a ‘pep rally’.
A late dispute over the estate tax produced allegations of bad faith from all sides.
McConnelll, a Senate Republican leader – shepherding final talks with Biden – 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.
U.S. President Barack Obama delivers a statement on the fiscal cliff at the James Brady Press Briefing Room of the White House Thursday
The White House and Democrats initially declined the offer, preferring to prevent the cuts from kicking in at the Pentagon and domestic agencies alike. Officials said they might yet reconsider, although there was also talk of a short-term delay in the reductions.
While the deadline to prevent tax increases and spending cuts was technically midnight, passage of 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.
At about 3pm McConnell took to the Senate floor to announce, ‘I can report that we’ve reached an agreement on all of the tax issues. We are very, very close.’
The potential deal appeared to be centred around raising tax rates for families earning more than $450,000 a year and individuals who make more than $400,000.
At the same time delaying for three months the ‘sequester’ that would trigger tens of billions of dollars in spending cuts at the Pentagon and other federal agencies while unemployment insurance, a key issue for Democrats, would be extended.
WHAT’S THE DEAL? HIGHLIGHTS OF FISCAL CLIFF AGREEMENT
- Income tax rates: Extends decade-old tax cuts on incomes up to $400,000 for individuals, $450,000 for couples. Earnings above those amounts would be taxed at a rate of 39.6 per cent, up from the current 35 per cent. Extends Clinton-era caps on itemized deductions and the phase-out of the personal exemption for individuals making more than $250,000 and couples earning more than $300,000.
- Estate tax: Estates would be taxed at a top rate of 40 percent, with the first $5 million in value exempted for individual estates and $10 million for family estates. In 2012, such estates were subject to a top rate of 35 percent.
- Capital gains, dividends: Taxes on capital gains and dividend income exceeding $400,000 for individuals and $450,000 for families would increase from 15 percent to 20 percent.
- Alternative minimum tax: Permanently addresses the alternative minimum tax and indexes it for inflation to prevent nearly 30 million middle- and upper-middle income taxpayers from being hit with higher tax bills averaging almost $3,000. The tax was originally designed to ensure that the wealthy did not avoid owing taxes by using loopholes.
- Other tax changes: Extends for five years Obama-sought expansions of the child tax credit, earned income tax credit, and an up to $2,500 tax credit for college tuition. Also extends for one year accelerated ‘bonus’ depreciation of business investments in new property and equipment, a tax credit for research and development costs and a tax credit for renewable energy such as wind-generated electricity.
- Unemployment benefits: Extends jobless benefits for the long-term unemployed for one year.
- Cuts in Medicare reimbursements to doctors: Blocks a 27 per cent cut in Medicare payments to doctors for one year. The cut is the product of an obsolete 1997 budget formula.
- Social Security payroll tax cut: Allows a 2 percentage point cut in the payroll tax first enacted two years ago to lapse, which restores the payroll tax to 6.2 per cent.
- Across-the-board cuts: Delays for two months $109 billion worth of across-the-board spending cuts set to start striking the Pentagon and domestic agencies this week. Cost of $24billion is divided between spending cuts and new revenues from rules changes on converting traditional individual retirement accounts into Roth IRAs.
Speaking on the Senate floor – where members were convening on New Year’s Eve for the first time since 1995 – Senator Tom Harkin of Iowa thundered: ‘No deal is better than a bad deal and this looks like a very bad deal the way this is shaping up.’
The fiscal cliff is a series of tax rises and budget cuts that take effect on January 1st 2013 unless the White House and Congress reach an agreement to start reducing the country’s $16 trillion-plus debt.
Biden and McConnell served in the Senate together for 23 years. The vice-president had been absent from fiscal cliff negotiations but was brought in when McConnell telephoned him after discussions with Senator Harry Reid, the Democratic Majority Leader, ran into the sand.
The deal would represent major concessions for both Democrats and Republicans – President Barack Obama campaigned on raising taxes for families making more than $250,000 while Republicans have been adamantly opposed to any tax increases.
Aides briefed that Biden and McConnell spoke at 12.45am on December 31st and then again at 6.30am.
Some economists predict that going over the ‘fiscal cliff’ could eventually throw the U.S. economy back into recession, though if the deadline passes politicians still have several weeks to keep the tax rises and spending cuts at bay by repealing them retroactively if a deal is reached.
Biden had proposed raising taxes on individuals earning more than $360,000 annually and families with income of more than $450,000. McConnell responded by offering a tax rise for individuals above $450,000 and couples who earn more than $550,000.
Democratic negotiators insist that McConnell will have to go significantly lower to win support from their party while Republicans argue that dropping the tax rise threshold would make it more difficult for the Grand Old Party leader to win over fellow Republicans.
Any deal that passes in the Senate will have to be voted on by the House of Representatives – a much higher hurdle because it is controlled by Republicans and John Boehner, the Speaker, has a tenuous hold over his caucus.
In an interview on NBC’s Meet the Press’ that was broadcast on Sunday, President Obama blasted congressional Republicans for waiting out the clock as the nation edges closer to the so-called fiscal cliff.
‘We’ve been talking to Republicans but they have a hard time saying ‘yes,’ Obama said Sunday.
‘They say that their biggest priority is making sure that we deal with the deficit in a serious way, but the way they’re behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected,’ Obama said Sunday. ‘That seems to be their only overriding, unifying theme.’
Obama said he had tried to negotiate with Republicans but his efforts had been blocked.
He insisted he had met Republicans more than half way on their demands, citing that he reduced his initial demand for revenue from $1.6trillion to $1.2trillion, agreed to entitlement reforms, and has already passed spending cuts such as the $1 trillion as part of the Budget Control Act in 2011.
‘What’s been holding us back is the dysfunction here in Washington,’ Obama said.
‘And if people start seeing that on January 1st this problem still hasn’t been solved, that we haven’t seen the kind of deficit reduction that we could have had had the Republicans been willing to take the deal that I gave them, if they say that people’s taxes have gone up, which means consumer spending is going to be depressed, then obviously that’s going to have an adverse reaction in the markets.’
President Barack Obama speaks to reporters about the fiscal cliff in the Brady Press Briefing Room at the White House in Washington
Gray skies cover the U.S. Capitol in Washington as Congress closes down for the holiday without a compromise on the ‘fiscal cliff’
Speaker of the House John Boehner, (left) and Senate Majority Leader Harry Reid (right with the president) must compromise together along with President Obama on the looming ‘fiscal cliff’