WASHINGTON (AP) — A weary Congress sent President Barack Obama legislation to avoid the economy-threatening “fiscal cliff” of middle-class tax increases and across-the-board spending cuts hours before financial markets reopen after the New Year’s holiday.
The bill’s passage on a 257-167 vote late Tuesday night in the House of Representatives 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 that he will sign the law “that raises taxes on the wealthiest 2 percent of Americans while preventing tax hikes that could have sent the economy back into recession.”
“A central promise of my campaign for president was to change the tax code that was too skewed towards the wealthy at the expense of working middle-class Americans,” Obama said before flying to Hawaii to resume his holiday break. “Tonight we’ve done that.”
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.
Passage of the bill came nearly 24 hours after a decade’s worth of tax cuts enacted during President George W. Bush’s administration expired with the stroke of the new year, technically raising taxes by more than $500 billion in 2013 alone.
Those tax increases — plus $109 billion in defense and domestic spending cuts that were to be automatically triggered Wednesday — became known as the “fiscal cliff.” Economists warned that their combined impact would hurl the economy back into recession, but Obama’s signature on the bill would prevent the “cliff” from taking hold.
Obama can sign the bill remotely using a machine called an “autopen,” or the bill can be flown to Hawaii for his signature.
The bill would boost the top 35 percent income tax rate to 39.6 percent for incomes exceeding $400,000 for individuals and $450,000 for couples, while continuing decade-old income tax cuts for everyone else. In his re-election campaign last year Obama had vowed to boost rates on earnings at somewhat lower levels — $200,000 for individuals and $250,000 for families. The bill would also raise taxes top earners pay on dividends, capital gains and inherited estates.
It would stop $24 billion in spending cuts set to take effect over the next two months, although only about half of that total would be offset with spending reductions elsewhere in the budget.
Scores of Republican lawmakers voted for the measure, reversing a quarter-century of solid opposition by their party to boosting any tax rates at all.
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.
Had the House inserted those budget cuts and the Senate refused to consider them, the legislation could have died. That left House Republicans worried that voters might blame them for a huge, sweeping tax increase and for any swoon the nation’s financial markets might take when they reopened Wednesday.
House Speaker John Boehner took no public stance on the measure before the vote. But he guided the Senate bill to the House floor for a final vote.
Boehner voted for the bill, an unusual step because speakers seldom vote, and he was joined by Rep. Paul Ryan, the Republican vice presidential candidate in the November election. Voting “no” were the other two top Republican House leaders, Reps. Eric Cantor and Kevin McCarthy.
Still, House Republicans voted against the measure by a 151-85 margin. It is rare for leaders to bring a bill to the House floor that will be opposed by most lawmakers from their own party, and the decision underscored the pressure Republican leaders felt to approve the legislation.
House Democrats, including their leader Rep. Nancy Pelosi, voted by an overwhelming 172-16 for the agreement.
Supporters of the bill in both parties expressed regret that the bill 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 post-election stab at compromise.
The bill also prevents an expiration of extended unemployment benefits for an estimated two million jobless, renews tax breaks for businesses and renewable energy purposes, blocks a 27 percent cut in fees for doctors who treat elderly Medicare patients, stops a $900 pay increase for lawmakers from taking effect in March and head offs a threatened spike in milk prices.
Even with enactment of the legislation, taxes are on the rise for millions of Ameircans.
A 2 percentage point temporary cut in the Social Security payroll tax, originally enacted two years ago to stimulate the economy, expired with the end of 2012. Neither Obama nor Republicans made a significant effort to extend it.
The non-partisan Congressional Budget Office said the measure would add nearly $4 trillion over a decade to federal deficits, a calculation that assumed taxes would otherwise have risen on taxpayers at all income levels. There was little or no evident concern among Republicans on that point, presumably because of their belief that tax cuts pay for themselves by expanding economic growth and do not cause deficits to rise.
The relative paucity of spending cuts was a sticking point with many House Republicans. Among other items, the extension of unemployment benefits costs $30 billion, and is not offset by savings elsewhere.
“I’m embarrassed for this generation. Future generations deserve better,” complained one Republican foe of the bill, Rep. Louie Gohmert.
The automatically triggered “fiscal cliff” spending cuts were put in place last year as an incentive to both parties to find ways to reduce the deficit. That solution grew out of the two parties’ inability in 2011 to agree to a grand bargain that would have taken a big bite out of the deficit which has averaged about $1 trillion a year.
For all the struggle involved in the legislation to avert the “fiscal cliff,” even its passage would merely clear the way for another round of struggle about taxes and spending almost as soon as the new Congress convenes.
With the Treasury expected to need an expansion in borrowing authority by early spring, and funding authority for most government programs set to expire in late March, Republicans have made it clear they intend to use those events as leverage with the administration to win savings from the Medicare health care program for the elderly and other government benefit programs.
In a statement after the vote, Boehner said, “Now the focus turns to spending. The American people re-elected a Republican majority in the House, and we will use it in 2013 to hold the president accountable for the ‘balanced’ approach he promised, meaning significant spending cuts and reforms to the entitlement programs that are driving our country deeper and deeper into debt.”
In his White House remarks, Obama said that while he was open to compromise, he would demand deficit-cutting savings from added revenue on the well-off, not just spending cuts.
He also pointedly said he would “not have another debate with this Congress” over extending the federal borrowing limit.
“If Congress refuses to give the United States government the ability to pay these bills on time, the consequences for the entire global economy would be catastrophic — far worse than the impact of a fiscal cliff,” he said.
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Associated Press writers David Espo, Alan Fram, Andrew Taylor, Larry Margasak and Julie Pace contributed to this story.
Copyright 2013 The Associated Press.
