Like falling off a log: fiscal crisis averted – for now

WASHINGTON — 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.

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.

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.

McConnell said as much moments before the 2 a.m. Tuesday vote in the Senate — two hours after the advertised “cliff” deadline.

“We’ve taken care of the revenue side of this debate. Now it’s time to get serious about reducing Washington’s out-of-control spending,” he said. “That’s a debate the American people want. It’s the debate we’ll have next. And it’s a debate Republicans are ready for.”

President Obama addressed the same point in his brief remarks. He said he is prepared to take steps to control spending this year, and noted pointedly that savings must be found in Medicare. “I believe that there’s further unnecessary spending in government that we can eliminate,” he said.

Countering McConnell and other Republicans, the president said future legislation must combine additional revenues and spending cuts, and he warned the GOP not to try and use the expiration of the Treasury’s borrowing authority to force spending cuts.

The 89-8 vote in the Senate was unexpectedly lopsided.

Despite grumbling from liberals that the President had given way too much in the bargaining, only three Democrats opposed the measure.

Among the Republican supporters were Sen. Pat Toomey of Pennsylvania, an ardent opponent of tax increases, as well as Sen. Ron Johnson of Wisconsin, elected to his seat two years ago with tea party support.

From a Nebraska perspective

U.S. Sen. Mike Johanns (R-Neb.) supported legislation negotiated by Senate Republican Leader Mitch McConnell (R-Ky.) and Vice President Joe Biden to avert the fiscal cliff and extend the current farm bill.

 “This agreement isn’t my ideal option, but I firmly believe going over the cliff isn’t an option at all,” Johanns said. “I would have preferred stopping a tax hike for every American, significantly reducing spending and strengthening Social Security and Medicare. This package, however, is a vast improvement from the Administration’s original proposal and no one can overlook the fact it protects an estimated 99 percent of Americans from being hit with the largest tax hike in our nation’s history.”

Since no package will be signed by President Obama before the New Year, any final deal will take place retroactively so tax rates will continue uninterrupted for the overwhelming majority of American taxpayers.

Without this agreement, American taxpayers would face a tax increase of almost $536 billion a year – the steepest single tax increase in American history. Roughly half of these tax increases would come from the expiration of the current income and investment income tax rates implemented during President George W. Bush’s tenure.

 Johanns believes addressing programs like Medicare and Social Security must be part of any long-term solution.

Congressman Adrian Smith (R-NE) made the following statement after voting against the Senate’s fiscal cliff agreement:

“This debate is not over.  My concerns about spending remain and I will continue to fight to reduce the deficit and pass commonsense tax reform to put our country on a more sustainable and prosperous path.  We must find an alternative to arbitrary defense cuts, but simply delaying these difficult decisions without replacing the spending reductions is the wrong approach.”

Contributors include: ALAN FRAM,Associated Press

DAVID ESPO,Associated Press

Details of the package

• Permanently extends current tax rates for families earning less than $450,000 a year

• Makes permanent current capital gains and dividends rates for families earning less than $450,000 while changing the rate to 20 percent for families making more than $450,000

• Extends popular tax credits – like the tuition and child care tax credits – for five years

• Extends the current $5 million estate tax exemption but the tax rate on estates over that limit would change from 35 percent to 40 percent

• Prevents a 27 percent reduction in Medicare payments to doctors and other health care providers treating patients on Medicare

• Replaces two months of the approximately $100 billion across-the-board spending cuts known as sequestration scheduled to start in January

• Extends the current farm bill, which passed in 2008, through the end of this fiscal year

• Permanently patches the Alternative Minimum Tax. This tax was originally designed to prevent high-income earners from using exemptions to avoid paying income taxes but did not automatically adjust for inflation. Without patching the AMT, this tax would impact nearly 135,000 Nebraska households earning as little as $33,750 a year according to the Congressional Research Office.