Senate approves fiscal cliff legislation 89-8


WASHINGTON — Hours past a self-imposed deadline for action, the Senate passed legislation early New Year's Day to neutralize a fiscal cliff combination of across-the-board tax increases and spending cuts that kicked in at midnight. The pre-dawn vote was a lopsided 89-8.

Senate passage set the stage for a final showdown in the House, where a vote was expected later Tuesday or perhaps Wednesday on the measure, which also raises tax rates on wealthy Americans.

Even by the recent dysfunctional standards of government-by-gridlock, the activity at both ends of historic Pennsylvania Avenue was remarkable as the administration and lawmakers spent the final hours of 2012 haggling over long-festering differences.

"It shouldn't have taken this long to come to an agreement, and this shouldn't be the model for how we do things around here," said Senate Republican leader Mitch McConnell, who negotiated the agreement with Vice President Joe Biden.

Shortly after the Senate vote, President Barack Obama said, "While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay."

Under the deal, taxes would remain steady for the middle class and rise at incomes over $400,000 for individuals and $450,000 for couples — levels higher than Obama had campaigned for in his successful drive for a second term in office.

Spending cuts totaling $24 billion over two months aimed at the Pentagon and domestic programs would be deferred. That would allow the White House and lawmakers time to regroup before plunging very quickly into a new round of budget brinkmanship certain to revolve around Republican calls to rein in the cost of Medicare and other government benefit programs.

Officials also decided at the last minute to use the measure to prevent a $900 pay raise for lawmakers due to take effect this spring.

Details of Senate bill averting 'fiscal cliff' 

Highlights of a bill approved this morning by the Senate aimed at averting wide tax increases and budget cuts scheduled to take effect in the new year. The measure would raise taxes by about $600 billion over 10 years compared with tax policies that were due to expire at midnight Monday. It would also delay for two months across-the-board cuts to the budgets of the Pentagon and numerous domestic agencies.

The House is expected to vote on the bill today or Wednesday.

Highlights include:

—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 percent, up from the current 35 percent. 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, the 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 percent 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 percent.

—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 $24 billion is divided between spending cuts and new revenues from rule changes on converting traditional individual retirement accounts into Roth IRAs.

 -- The Associated Press
DEBT LIMIT TALKS NEXT

WASHINGTON — The U.S. government is running up against its $16.4 trillion borrowing limit and is taking steps to avoid default.

Reaching the limit Monday sets up another dispute between the White House and Congress over taxes and spending in the new year.

Treasury Secretary Timothy Geithner says the government will take a series of accounting measures to avoid defaulting on its debt. On Monday, it suspended the issuance of new debt for two government retirement funds.

Last week, Geithner said the measures would save about $200 billion and avoid default for about two months.

Geithner said it is difficult to predict how long default can be avoided because of ongoing negotiations over tax and budget policies.

The debt limit is the amount the government can borrow to help finance its operations.

– Associated Press

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