House Republicans dragged America to the rim of the fiscal cliff Tuesday before bowing to pressure from the Senate and passing legislation limiting tax hikes and spending cuts.
The final House vote on a Senate deal brokered by Vice President Joe Biden and approved in the first hours of 2013 was 257-167. In the end, 85 Republicans voted for the accord.
The bill now goes to the White House, where it is expected to be signed by President Obama.
Tuesday’s contentious action in the House was a virtual replay of what took place the night before in the Senate. House Republicans were intent on amending the bill to add $300 billion in spending cuts, but eventually backed down when they could not gather enough support to push it through.
According to projections, the cost to taxpayers with an income of $52,000 would be about $700. Those with incomes of up to $84,000, would pay approximately $1,150.
People with an income of $244,000 would pay another $5,570.
Deal Will Add to Federal Deficit
The irony of the bill is that the Congressional Budget Office already estimated that in its present form, the bill will add nearly $4 trillion to the federal deficit over the next 10 years, not subtract from it. That’s because the new legislation will delay or even negate the impact of the mandatory tax hikes and spending cuts that were due to go into effect on Jan. 1.
Under a deal signed in 2011, American taxpayers were to be hit with $500 billion in new taxes this year. Spending cuts for defense and domestic programs were going to account for another $110 billion in reducing the federal deficit of $16 trillion.
The new legislation will mean reductions of just slightly more than half, or approximately $330 billion. The most prominent features of the bill:
- Taxes will go up permanently on families with income above $450,000 and individuals above $400,000.
- Mandatory spending cuts for defense and domestic programs – popularly referred to as sequestration – will be delayed for two months.
- The payroll tax holiday will expire, meaning most workers will automatically see a two percent hike in taxes in 2013.
- Federal unemployment insurance will be extended for another year for those who’ve been unemployed longer than 26 weeks.
- A permanent fix will be made to the Alternative Minimum Tax so that it doesn’t raise taxes on the middle class.
- Capital gains tax and dividends will be permanently set at 20 percent for those with income above the $450,000 for families and $400,000 for individuals. Everyone else will pay 15 percent.
- Those above the $450,000/$400,000 limit will pay estate tax of 40 percent, with an exemption on the first $5 million.
- Doctors will no longer be subject to a scheduled 27 percent reduction in reimbursement for treating Medicare patients.
- The Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit will be extended for five years.
- A “Milk Tax” will be attached to the bill to prevent an expiring farm bill from pushing milk prices to somewhere between $6 and $8 a gallon.
Cantor Opposed Agreement
House Minority Leader Eric Cantor from Virginia convened two meetings Tuesday with Republicans to build support for amending the bill — with the intention of adding $300 billion in spending cuts. The conservative members of the party, already miffed that taxes were going to increase on the wealthy, were even angrier that sequestration – the across-the-board, 10-percent cut on defense and domestic problems agreed to by Congress in August of 2011 – would be postponed for two months.
“I have read the bill and can’t find the spending cuts – even with an electron magnifying glass,” Representative Trey Gowdy of South Carolina, who generally votes against budget bills, told The New York Times. “It’s part medicinal, part placebo, and part treating the symptoms but not the underlying pathology.”
The problem with amending the bill was that it passed the Senate 88-9, meaning it had clear support from the Republican side. Senate Democrats sent word that they would not accept an amended version and Republican Senators did not step up and support their party members. House Republicans noticed.
“This is not a good deal,” Rep. Steve LaTourette, R-Ohio said. “This is a sad state of affairs — that we’re going to take a bill that was passed on New Year’s Eve by some sleep-deprived octogenarians that has very, very heavy on taxes and does nothing to cut spending, which is really part of the big problem that we have in the country.”
Eventually, however, House Republicans realized they would be blamed if the bill didn’t pass. The prospect of having millions of taxpayers angry at them was enough to convince them to bring the bill to a vote and allow it.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].
- Klein, E. (2013, Jan. 1) Wonkbook: Everything you need to know about the fiscal cliff deal. Washington Post. Retrieved from: http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/01/wonkbook-everything-you-need-to-know-about-the-fiscal-cliff-deal/?hpid=z1
- Steinhauer, J. (2013, Jan. 1) House Nears Vote on Senate Deal, Despite Objections. New York Times. Retrieved from: http://www.nytimes.com/2013/01/02/us/politics/house-takes-on-fiscal-cliff.html?hp&_r=0
- Ford, D. and Levs, J. (2013, Jan. 1) GOP anger threatens to undo fiscal cliff deal in the House. CNN.com. Retrieved from: http://www.cnn.com/2013/01/01/politics/fiscal-cliff/index.html?hpt=hp_t1