America awaits House action on cliff

America awaits House action on cliff

By: Jake Sherman and Carrie Budoff Brown and Kate Nocera
January 1, 2013 02:58 AM EST

So over the cliff the country went — though perhaps for only a day or two and, assuming no snags, without incurring the double whammy of another recession and higher unemployment.

(PHOTOS: Fiscal cliff’s key players)

The measure, which would raise tax rates for families making more than $450,000 and delay deep across-the-board spending cuts for two months, cleared the Senate by an overwhelming 89-8 vote shortly after 2 a.m. The Republican-controlled House could take up the pact in a rare New Year’s Day session, though the timing of that chamber’s vote was not clear.

The $620 billion agreement was a major breakthrough in a partisan standoff that has dragged on for months, spooking Wall Street and threatening to hobble the economic recovery. It turned back the GOP’s two-decade-long refusal to raise tax rates, delivering a major win for the president.

The bill also canceled pay raises for members of Congress and averted an expected hike in the price of milk by extending expiring dairy policy.

But as big a deal as it was, it did little to address the nation’s long-term deficit problem — there’s nothing in it to pare back entitlement spending — or to defuse a potential crisis over raising the debt ceiling that could come as early as February.

(Also on POLITICO: Dems win key tax fights)

The legislation now moves to the House, where Speaker John Boehner (R-Ohio) has vowed to give any accord passed by the Senate its time on the House floor. GOP aides said a wide bipartisan vote would ease the bill’s passage through the House, but hurdles still remain. It remains to be seen whether House Republicans try to amend the package — a tactic that would surely sink the deal.

“Each of us could spend the rest of the week discussing what a perfect solution would have looked like, but the end result would have been the largest tax increase in American history,” Minority Leader Mitch McConnell (R-Ky.) said on the Senate floor before the vote. “The President wanted tax increases, but thanks to this imperfect agreement, 99 percent of my constituents won’t be hit by those hikes. So it took an imperfect solution to prevent our constituents from very real financial pain. But in my view, it was worth the effort.”

The deal was crafted by McConnell and Vice President Joe Biden – old friends from decades of Senate service – after two months-worth of talk between other leaders collapsed.

(PHOTOS: Fiscal cliff New Year countdown)

Biden served as the conduit to the president and Democratic congressional leaders, while McConnell did the same for Republicans. It was the third year in a row that they played an instrumental role in a major policy battle – in 2010, they hashed out a tax deal, and in 2011, they helped secure the debt limit agreement.

McConnell and Biden negotiated by phone until about 12:45 a.m. Monday, then the president met with Biden in the Oval Office with other key aides until 2 a.m., talking over the emerging deal. When that meeting ended, White House legislative director Rob Nabors headed to the Hill to draft legislative language with Senate staff.

The direct negotiations started back up only a few hours later when Biden and McConnell spoke before 7 a.m. and dragged on through the day, as Democrats and Republicans wrangled over how to pay for a short delay in the across-the-board spending cuts known as the sequester.

Shortly before 9 p.m. Monday, with only hours to spare before the deadline, Obama called Senate Majority Leader Harry Reid (D-Nev.) and House Minority Leader Nancy Pelosi (D-Calif.) to get their sign-off on the agreement, although they had been looped in all along.

Reid thanked McConnell for his work on the agreement and said it’s now up to Speaker John Boehner (R-Ohio) to usher it through the House.

“I’m disappointed that we weren’t able to make the grand bargain, as we have tried to do for so long, but we tried,” Reid said. “If we do nothing the threat of a recession is very real and passing this agreement does not mean negotiations halt. Far from it. We can all agree there is more work to be done.”

It’s not the grand bargain that Wall Street and corporate CEOs wanted to see – and spent millions advocating for. But it is still fairly broad in scope. And it reflects significant concessions by both sides, but particularly for McConnell.

Marginal income tax rates will snap up to 39.6 percent on income above $400,000 for individuals and above $450,000 for families.

Those thresholds were higher than the $250,000 level Obama campaigned for in last year’s reelection campaign. And the legislation would make the higher tax rates for wealthier families permanent, which McConnell sold as a win for his party because it could avert future fights over expiring tax rates.

Democrats, in turn, get a yearlong extension of unemployment benefits and business-friendly tax provisions. In a major win for the Obama administration, tax cuts for families first enacted in the 2009 stimulus — an expanded earned income tax credit, child tax credit and college tax credit — would be extended for five years.

The deal would also prevent rate cuts to doctors who treat Medicare patients, sources said. Dividends and capital gains on family income above $450,000 would be taxed at 20 percent, up from the current 15 percent rate.

The bill also cancels pay raises for members of Congress and would avert an expected hike in the price of milk by extending expiring dairy policy.

McConnell’s first offer on Friday night was far from where the deal ended up, according to sources familiar with the talks. That proposal included raising the income threshold to $750,000, instituting means testing for Medicare, reverting to a less generous inflation calculator for government programs, no extension of middle class tax credits and continuing the current estate tax rates, which many Democrats opposed. None of those elements made it into the bill.

Three Democrats — Sens. Michael Bennet of Colorado, Tom Harkin of Iowa and Tom Carper of Delaware voted against the bill. They joined Republicans Marco Rubio of Florida, Richard Shelby of Alabama, Chuck Grassley of Iowa, Rand Paul of Kentucky and Mike Lee of Utah in opposition.

Harkin said just prior to the vote that the deal fell short of his goal to help “real middle-class families.” Bennet is chairman of the Democratic Senatorial Campaign Committee — his role is to hang on to the Democratic majority in 2014 so his “no” vote is also significant.

Democrats needed Biden to make the final sell. He traveled to the Capitol around 9:15 p.m. with other top White House officials to press his former Senate Democratic colleagues to get behind the plan, which they did in big numbers.

Monday saw both sides hurrying to finalize an accord before 2013. The final sticking point was over delaying the so-called sequester, across-the-board spending cuts slated to begin Jan. 2. Those cuts will be replaced in equal parts by fresh government revenues and other targeted spending reductions.

Obama appeared at the White House on Monday to say a deal was “within sight, but it’s not yet done.”

The president ribbed lawmakers during his remarks, saying he had hoped for a comprehensive deficit-reduction deal “so we can put all of this behind us and just focus on growing our economy.”

“With this Congress, that was obviously a little too much to hope for at this time,” Obama said. “Maybe we can do this in stages. We can solve this problem instead in several steps.”

CORRECTION: This story has been corrected to show that Sen. Tom Carper of Delaware was a “no” vote.