Legislation to negate a fiscal cliff of across-the-board tax increases and sweeping spending cuts to the Pentagon and other government agencies is headed to the GOP-dominated House of Representatives after bipartisan, middle-of-the-night approval in the Senate capped a New Year's Eve drama unlike any other in the annals of Congress.
The measure cleared the Senate on an 89-8 vote early Tuesday, hours after Vice President Joe Biden and Senate Republican Leader Mitch McConnell of Kentucky sealed a deal.
It would prevent middle-class taxes from going up but would raise rates on higher incomes. It would also block spending cuts for two months, extend unemployment benefits for the long-term jobless, prevent a 27 per cent cut in fees for doctors who treat Medicare patients and prevent a spike in milk prices.
The measure ensures that lawmakers will have to revisit difficult budget questions in just a few weeks, as relief from painful spending cuts expires and the government requires an increase in its borrowing cap.
House Speaker John Boehner pointedly refrained from endorsing the agreement, though he's promised a vote on it or a GOP alternative right away.
The measure is the first significant bipartisan tax increase since 1990, when former President George H.W. Bush violated his "read my lips" promise on taxes. It would raise an additional $620 billion over the coming decade when compared with revenues after tax cuts passed in 2001 and 2003, during the Bush administration. But because those policies expired at midnight Monday, the measure is officially scored as a whopping $3.9 trillion tax cut over the next decade.
President Barack Obama praised the agreement after the Senate's vote.
"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," Obama said in a statement. "This agreement will also grow the economy and shrink our deficits in a balanced way — by investing in our middle class, and by asking the wealthy to pay a little more."
The sweeping Senate vote exceeded expectations — tea party conservatives like Pat Toomey, R-Pa., and Ron Johnson, R-Wis., backed the measure — and would appear to grease enactment of the measure despite lingering questions in the House, where conservative forces sank a recent bid by Boehner to permit tax rates on incomes exceeding $1 million to go back to Clinton-era levels.
"Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members — and the American people — have been able to review the legislation," said a statement by Boehner and other top GOP leaders.
Lawmakers hope to resolve any uncertainty over the fiscal cliff before financial markets reopen Wednesday. It could take lots of Democratic votes to pass the measure and overcome opposition from tea party lawmakers.
Under the Senate deal, taxes would remain steady for the middle class but rise at incomes over $400,000 for individuals and $450,000 for couples — levels higher than President Barack Obama had campaigned for in his successful drive for a second term in office. Some liberal Democrats were disappointed that the White House did not stick to a harder line, while other Democrats sided with Republicans to force the White House to partially retreat on increases in taxes on multi-million-dollar estates.
The measure also allocates $24 billion in spending cuts and new revenues to defer, for two months, some $109 billion worth of automatic spending cuts that were set to slap the Pentagon and domestic programs starting this week. 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.
Even by the 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.
Republicans said McConnell and Biden had struck an agreement Sunday night but that Democrats pulled back Monday morning. Democrats like Tom Harkin of Iowa said the agreement was too generous to upper-bracket earners. Obama's longstanding position was to push the top tax rate on family income exceeding $250,000 from 35 per cent to 39 per cent.
"No deal is better than a bad deal. And this look like a very bad deal," said Harkin.
The measure would raise the top tax rate on large estates to 40 per cent, with a $5 million exemption on estates inherited from individuals and a $10 million exemption on family estates. At the insistence of Republicans and some Democrats, the exemption levels would be indexed for inflation.
Taxes on capital gains and dividends over $400,000 for individuals and $450,000 for couples would be taxed at 20 per cent, up from 15 per cent.
The bill would also extend jobless benefits for the long-term unemployed for an additional year at a cost of $30 billion, and would spend $31 billion to prevent a 27 per cent cut in Medicare payments to doctors.
Another $64 billion would go to renew tax breaks for businesses and for renewable energy purposes, like tax credits for energy-efficient appliances.
Despite bitter battling over taxes in the campaign, even die-hard conservatives endorsed the measure, arguing that the alternative was to raise taxes on virtually every earner.
"I reluctantly supported it because it sets in stone lower tax rates for roughly 99 per cent of American taxpayers," said Sen. Orrin Hatch, R-Utah. "With millions of Americans watching Washington with anger, frustration and anxiety that their taxes will skyrocket, this is the best course of action we can take to protect as many people as possible from massive tax hikes."