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Fiscal Cliff

Hours after the U.S. hit the fiscal cliff and a day before a new Congress would’ve had to start over, a late-night House vote averted big tax hikes and spending cuts.

In the 257-167 vote late Tuesday, 172 Democrats and 85 Republicans favored the bill; 16 Democrats and 151 Republicans opposed it.

The approved plan maintains tax cuts for individuals earning less than $400,000 per year and couples earning less than $450,000. It will raise tax rates for those who make more — marking the first time since 1993 that federal income tax rates have gone up for any Americans, according to the Tax Foundation.

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After exhaustive negotiations that strained the country’s patience, the House approved a bill to avert the dreaded fiscal cliff, staving off widespread tax increases and deep spending cuts.

In the 257-167 vote late Tuesday, 172 Democrats and 85 Republicans favored the bill; 16 Democrats and 151 Republicans opposed it.

The approved plan maintains tax cuts for individuals earning less than $400,000 per year and couples earning less than $450,000. It will raise tax rates for those who make more — marking the first time since 1993 that federal income tax rates have gone up for any Americans, according to the Tax Foundation.

The bill also extends unemployment insurance and delays for two months the threat of sequestration, a series of automatic cuts in federal spending.

World markets rose after the news. U.S. stocks jumped, too, with the Dow rising 210 points after opening. And federal workers breathed a sigh of relief as the deal provides a reprieve from across-the-board cuts of 8% to 10% of their budgets. The Defense Department said it has stayed furlough notices for its civilian work force of 800,000, but Pentagon officials say they’re worried that unpaid leave may be harder to implement later in the fiscal year.

“We hope Congress can find a way to end sequester once and for all,” Pentagon spokesman George Little said.

Just hours before the bill passed, House Speaker John Boehner pitched to fellow Republicans the idea of amending the Senate-approved bill to add a package of spending cuts. He cautioned about the risk in such a strategy, saying there was no guarantee the Senate would act on it.

By the end of the night, he was among the Republicans who voted for the bill as written.

President Barack Obama said he would sign the bill into law, but he did not say when. After the vote, he flew to Hawaii to rejoin his wife and daughters on their winter vacation.

Congress is planning to send the bill to the White House by early afternoon, a Republican leadership aide told CNN.

In practical terms, there’s no urgency on the president’s signature. It’s up to the Obama administration to implement the budget and tax changes, and since the president has said he will sign the measure, the administration can begin planning for the changes immediately.

Had the House not acted, and the Bush-era tax cuts expired fully, broad tax increases would have kicked in. In addition, $110 billion in automatic cuts to domestic and military spending would have taken place.

The combined effect could have dampened economic growth by 0.5%, possibly tipping the U.S. economy back into a recession and driving unemployment from its current 7.7% back over 9%, according to economists’ estimates.

While the package provides some short-term certainty, it leaves a range of big issues unaddressed.

It doesn’t mention the $16.4 trillion debt ceiling that the United States reached Monday.

Come late February, Congress will have to tackle both the debt ceiling and the postponed sequester — a legacy of the last battle over the debt ceiling, in 2011.

Obama warned Congress that he will not tolerate another act of prolonged brinksmanship.

“While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they’ve passed,” he said after the Tuesday night vote.

“We can’t not pay bills that we’ve already incurred. If Congress refuses to give the United States government the ability to pay these bills in time, the consequences for the entire global economy would be catastrophic — far worse than the impact of the fiscal cliff.”

How they voted: House | Senate

A partial victory

While the deal gives Obama bragging rights for raising taxes on the wealthiest Americans, it also leaves him breaking a promise.

Obama had vowed to raise tax rates for the top-earning 2% of Americans, including those with household income above $250,000 and individuals earning more than $200,000.

Raising the threshold for higher tax rates shrinks the number of Americans affected. While nearly 2% of filers have adjusted gross incomes over $250,000, only 0.6% have incomes above $500,000, according to the Tax Policy Center. By comparison, Census Bureau figures put the median U.S. household income at just over $50,000.

Some House Republicans weren’t exactly overjoyed in voting for the plan.

“I’m a very reluctant yes,” said Rep. Nan Hayworth, an outgoing Republican representative from New York.

“This is the best we can do, given the Senate and the White House sentiment at this point in time, and it is at least a partial victory for the American people,” she said. “I’ll take that at this point.”

Conservative lobbyist Grover Norquist, whose Americans for Tax Reform pushes candidates to sign a pledge never to raise taxes, said the plan preserves most of the Bush tax cuts and won’t violate his group’s beliefs.

“The Bush tax cuts lapsed at midnight last night,” Norquist tweeted Tuesday. “Every (Republican) voting for Senate bill is cutting taxes and keeping his/her pledge.”

The timing of the vote was crucial, as a new Congress is set to be sworn in Thursday. And without a breakthrough, the entire process would have had to start over.

Specifics of the plan

The legislation will raise roughly $600 billion in new revenues over 10 years, according to various estimates.

According to the deal:

– The tax rate for individuals making more than $400,000 and couples making more than $450,000 will rise from the current 35% to the Clinton-era rate of 39.6%.

– Itemized deductions will be capped for individuals making $250,000 and for married couples making $300,000.

– Taxes on inherited estates will go up to 40% from 35%.

– Unemployment insurance will be extended for a year for 2 million people.

– The alternative minimum tax, a perennial issue, will be permanently adjusted for inflation.

– Child care, tuition and research and development tax credits will be renewed.

– The “Doc Fix” — reimbursements for doctors who take Medicare patients — will continue, but it won’t be paid for out of the Obama administration’s signature health care law.

The Democratic-led Senate overwhelmingly approved the bill early Tuesday before passing it to the House.

As news about the fiscal cliff’s deflection spread across the world, several markets reacted positively Wednesday.

Australia’s ASX All Ordinaries index added 1.2%. South Korea’s KOSPI gained 1.5%, and the Hang Seng in Hong Kong advanced 1.9%. Tokyo’s Nikkei and the Shanghai Composite remain closed for holiday celebrations but will reopen later in the week.

Payroll taxes still set to go up

Despite the last-minute fiscal cliff agreements, Americans are still likely to see their paychecks shrink somewhat because of a separate battle over payroll taxes.

The government temporarily lowered the payroll tax rate in 2011 from 6.2% to 4.2% to put more money in the pockets of Americans. That adjustment, which has cost about $120 billion each year, expired Monday.

Now, Americans earning $30,000 a year will take home $50 less per month. Those earning $113,700 will lose $189.50 a month.

With the latest battle round over, lawmakers will next set their sights on the other items on their docket of congressional squabbles over money: the debt ceiling and resolving the sequester.

Obama said he hopes leaders in Washington this year will focus on “seeing if we can put a package like this together with a little bit less drama, a little less brinksmanship (and) not scare the heck out of folks quite as much.”

He thanked bipartisan House and Senate leaders for finally reaching a resolution Tuesday, but said Congress’ work this year is just beginning.

“I hope that everybody now gets at least a day off I guess, or a few days off, so that people can refresh themselves, because we’re going to have a lot of work to do in 2013.”

Angry rhetoric flew

In the tense days leading up to the deal, heated words flew between some Democrats and Republicans.

On Friday, after Democratic Senate Majority Leader Harry Reid accused Boehner of holding a “dictatorship” in his chamber, the House speaker responded with a profanity.

“Go f— yourself,” Boehner said to Reid, according to a source with knowledge of the exchange in a White House lobby.
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After exhaustive negotiations that strained the country’s patience, the House approved a bill to avert the dreaded fiscal cliff, staving off widespread tax increases and deep spending cuts.

In the 257-167 vote late Tuesday, 172 Democrats and 85 Republicans favored the bill; 16 Democrats and 151 Republicans opposed it.

The plan approved Tuesday maintains tax cuts for individuals earning less than $400,000 per year and couples earning less than $450,000. It will raise tax rates for those who make more, marking the first time in two decades the rates jump for the wealthiest Americans.

Just hours before the bill passed, House Speaker John Boehner pitched to fellow Republicans the idea of amending the Senate-approved bill to add a package of spending cuts. He cautioned about the risk in such a strategy, saying there was no guarantee the Senate would act on it.

By the end of the night, he was among the Republicans who voted for the bill as written.

President Barack Obama said he would sign the bill into law, but he did not say when. After the vote, he flew to Hawaii to rejoin his wife and daughters on their winter vacation.

Had the House not acted, and the Bush-era tax cuts that were set last decade expired fully, broad tax increases would have kicked in. In addition, $110 billion in automatic cuts to domestic and military spending would have taken place.

The combined effect could have dampened economic growth by 0.5%, possibly tipping the U.S. economy back into a recession and driving unemployment from its current 7.7% back over 9%, according to economists’ estimates.

While the package provides some short-term certainty, it leaves a range of big issues unaddressed.

It doesn’t mention the $16.4 trillion debt ceiling that the United States reached Monday.

It also delays for two months the so-called sequester, a series of automatic cuts in federal spending that would have taken effect Wednesday and reduced the budgets of most agencies and programs by 8% to 10%.

Come late February, Congress will have to tackle both those thorny issues.

Obama warned Congress that he will not tolerate another act of prolonged brinksmanship.

“While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they’ve passed,” he said after the Tuesday night vote.

“We can’t not pay bills that we’ve already incurred. If Congress refuses to give the United States government the ability to pay these bills in time, the consequences for the entire global economy would be catastrophic — far worse than the impact of the fiscal cliff.”

A partial victory

While the deal gives Obama bragging rights for raising taxes on the wealthiest Americans, it also leaves him breaking a promise.

Obama had vowed to raise tax rates for the top-earning 2% of Americans, including those with household income above $250,000 and individuals earning more than $200,000.

Raising the threshold for higher tax rates shrinks the number of Americans affected.

While nearly 2% of filers have adjusted gross incomes over $250,000, only 0.6% have incomes above $500,000, according to the Tax Policy Center.

Some House Republicans weren’t exactly overjoyed in voting for the plan.

“I’m a very reluctant yes,” said Rep. Nan Hayworth, an outgoing Republican representative from New York.

“This is the best we can do, given the Senate and the White House sentiment at this point in time, and it is at least a partial victory for the American people,” she said. “I’ll take that at this point.”

Conservative lobbyist Grover Norquist, whose Americans for Tax Reform pushes candidates to sign a pledge never to raise taxes, said the plan preserves most of the Bush tax cuts and won’t violate his group’s beliefs.

“The Bush tax cuts lapsed at midnight last night,” Norquist tweeted Tuesday. “Every (Republican) voting for Senate bill is cutting taxes and keeping his/her pledge.”

The timing of the vote was crucial, as a new Congress is set to be sworn in Thursday. And without a breakthrough, the entire process would have had to start over.

Specifics of the plan

The legislation will raise roughly $600 billion in new revenues over 10 years, according to various estimates.

According to the deal:

– The tax rate for individuals making more than $400,000 and couples making more than $450,000 will rise from the current 35% to the Clinton-era rate of 39.6%.

– Itemized deductions will be capped for individuals making $250,000 and for married couples making $300,000.

– Taxes on inherited estates will go up to 40% from 35%.

– Unemployment insurance will be extended for a year for 2 million people.

– The alternative minimum tax, a perennial issue, will be permanently adjusted for inflation.

– Child care, tuition and research and development tax credits will be renewed.

– The “Doc Fix” — reimbursements for doctors who take Medicare patients — will continue, but it won’t be paid for out of the Obama administration’s signature health care law.

The Democratic-led Senate overwhelmingly approved the bill early Tuesday before passing it to the House.

As news about the fiscal cliff’s deflection spread across the world, several markets reacted positively Wednesday.

Australia’s ASX All Ordinaries index added 1.2%. South Korea’s KOSPI gained 1.5%, and the Hang Seng in Hong Kong advanced 1.9%. Tokyo’s Nikkei and the Shanghai Composite remain closed for holiday celebrations but will reopen later in the week.

Payroll taxes still set to go up

Despite the last-minute fiscal cliff agreements, Americans are still likely to see their paychecks shrink somewhat because of a separate battle over payroll taxes.

The government temporarily lowered the payroll tax rate in 2011 from 6.2% to 4.2% to put more money in the pockets of Americans. That adjustment, which has cost about $120 billion each year, expired Monday.

Now, Americans earning $30,000 a year will take home $50 less per month. Those earning $113,700 will lose $189.50 a month.

With the latest battle round over, lawmakers will next set their sights on the other items on their docket of congressional squabbles over money: the debt ceiling and resolving the sequester.

Obama said he hopes leaders in Washington this year will focus on “seeing if we can put a package like this together with a little bit less drama, a little less brinksmanship (and) not scare the heck out of folks quite as much.”

He thanked bipartisan House and Senate leaders for finally reaching a resolution Tuesday, but said Congress’ work this year is just beginning.

“I hope that everybody now gets at least a day off I guess, or a few days off, so that people can refresh themselves, because we’re going to have a lot of work to do in 2013.”

Angry rhetoric flew

In the tense days leading up to the deal, heated words flew between some Democrats and Republicans.

On Friday, after Democratic Senate Majority Leader Harry Reid accused Boehner of holding a “dictatorship” in his chamber, the House speaker responded with a profanity.

“Go f— yourself,” Boehner said to Reid, according to a source with knowledge of the exchange in a White House lobby.

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An agreement on the so-called fiscal cliff was reach by the Senate early Tuesday.  Vice President Biden came in at the last minute to seal the deal for the Senate, who passed it overwhelmingly.  Now it’s in the hands of the House where Republicans are fighting it.

The Senate deal only raises taxes on those making over $400,000 a year.  It also extends unemployment benefits.  But it puts off tackling $24 billion dollars in spending cuts for two months when a new congress will be in place.

Even so Illinois Senator Dick Durbin praised President Obama for making the deal happen.

House Speaker John Boehner and House Majority leader Eric Cantor took a short break from a closed door meeting with GOP leaders earlier in the day. Cantor said, “I do not support this bill.”

The House faces a deadline. On Thursday at noon, a new Congress will be sworn in. A bill passed by the previous Senate would no longer apply, so both chambers would have to start from scratch.

It’s unclear if the house will vote today, so far nothing is set.   Republicans are still going over the deal and may make amendments to the Senate bill which will kick it back there for a vote.

-CNN contributed to this report

If a Senate deal to avert the fiscal cliff becomes law, all but a sliver of the U.S. population will avoid higher tax rates, some key issues will be put off for two months, and all sides in the battle will emerge with a mixed record: winning key points, while ceding ground on others.

The deal, which passed the Democratic-controlled Senate in an overwhelming 89-8 vote in the early hours of Tuesday, would maintain tax cuts for individuals earning less than $400,000 and couples earning less than $450,000. Technically, it would reinstate cuts that expired at midnight.

It would raise tax rates for those over those levels — marking the first time in two decades the rates jump for the wealthiest Americans.

The bill faces an uncertain future in the Republican-controlled House where GOP members gathered Tuesday afternoon.

“The purpose of this meeting is to review what the Senate has passed, discuss potential options, and seek member feedback. No decision on the path forward is expected before another member meeting that will be held later today,” one GOP leadership aide said.

Vice President Joe Biden, meanwhile, met with House Democrats. A longtime senator, he helped broker the Senate deal.

The House faces a deadline. On Thursday at noon, a new Congress will be sworn in. A bill passed by the previous Senate would no longer apply, so both chambers would have to start from scratch.

Some Republican lawmakers, including Reps. Phil Gingrey of Georgia and Tim Huelskamp of Kansas, told CNN they would not support the bill as written.

“It’s taxing, and still taxing, small businessmen and women, and I don’t like that at all,” Gingrey said, referring to some small business owners who would be among those whose tax rates rise.

It’s the opposite argument of some Democrats who oppose the bill. Sen. Tom Harkin, D-Iowa, complained that the deal “makes tax benefits for high-income earners permanent, while tax benefits designed to help those of modest means and the middle class are only extended for five years.”

The bill temporarily extends certain tax breaks, such as the one for college tuition, while making new tax rates permanent.

While the deal gives President Barack Obama bragging rights for raising taxes on the wealthiest Americans, it also leaves him breaking a promise.

Obama had vowed to raise tax rates for the top-earning 2% of Americans, including those with household income above $250,000, and individuals earning more than $200,000.

“What I’m not going to do is to extend Bush tax cuts for the wealthiest 2% that we can’t afford and, according to economists, will have the least positive impact on our economy,” the president said at a news conference in November, after being asked by CNN why Americans should believe he would not “cave again this time” by allowing those Bush-era tax cuts to be extended.

When asked whether closing loopholes instead of raising rates would be satisfactory, the president responded, “when it comes to the top 2%, what I’m not going to do is to extend further a tax cut for folks who don’t need it, which would cost close to a trillion dollars. And it’s very difficult to see how you make up that trillion dollars, if we’re serious about deficit reduction, just by closing loopholes in deductions. You know, the math tends not to work.”

The deal passed by the Senate would cap itemized deductions for individuals making $250,000 and for married couples making $300,000.

Raising the threshold for higher tax rates to $400,000 shrinks the number of Americans affected. While nearly 2% of filers have adjusted gross incomes over $250,000, only 0.6% have incomes above $500,000, according to the Tax Policy Center.

Still, in a written statement early Tuesday, the president held on to the 98% figure he has so often touted.

The deal “protects 98% of Americans and 97% of small business owners from a middle class tax hike,” he 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.”

The president also acknowledged, “There’s more work to do to reduce our deficits, and I’m willing to do it. But tonight’s agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans.”

However, many Americans are still likely to see their paychecks shrink somewhat, due to a separate battle over payroll taxes.

Senate vote ‘sends a strong message’

“Glad it’s over,” said Senate Majority Leader Harry Reid, D-Nevada, after the vote on the fiscal cliff deal, just a couple of hours after the East Coast rang in the new year. “We’ll see if the Republicans in the House can become functional instead of dysfunctional.”

A statement from House leadership made no promises.

“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,” the statement said.

Sen. John Hoeven, R-North Dakota, was hopeful the House will follow suit.

“The vote was 89 to 8. Bipartisan vote. 89 votes,” he said. “I think it sends a strong message and I think it will be approved by the House.”

What the package proposes

Under the Senate package:

– Taxes would stay the same for most Americans. But they will increase for individuals making more than $400,000 and couples making more than $450,000. For them, it will go from the current 35% to the Clinton-era rate of 39.6%.

– Itemized deductions would be capped for those making $250,000 and for married couples making $300,000.

– Taxes on inherited estates will go up to 40% from 35%.

– Unemployment insurance would be extended for a year for 2 million people.

– The alternative minimum tax — a perennial issue — would be permanently adjusted for inflation.

– Child care, tuition and research and development tax credits would be renewed.

– The “Doc Fix” — reimbursements for doctors who take Medicare patients — will continue, but it won’t be paid for out of the Obama administration’s signature health care law.

– A spike in milk prices will be avoided. Agriculture Secretary Tom Vilsack said milk prices would have doubled to $7 a gallon because a separate agriculture bill had expired.

What’s not addressed

While the package provides some short-term certainty, it leaves a range of big issues unaddressed.

It doesn’t mention the debt ceiling, and temporarily puts off for two months the so-called sequester — a series of automatic cuts in federal spending that would have taken effect Wednesday. It would have reduced the budgets of most agencies and programs by 8% to 10%.

This means that, come late February, Congress will have to tackle both those thorny issues.

“We’re going to have to deal with the sequester, that’s true,” said Sen. Max Baucus, D-Montana, “but look, this is better than nothing.”

Reid said the agreement was a win for average Americans.

“I’ve said all along that our most important priority was to protect the middle class families,” he said. “This legislation does that.”

And maybe a bit more.

According to the U.S. Census Bureau, median household income in 2011 was $50,054, which is well below the tax cut threshold approved by the Senate.

Senate Minority Leader Mitch McConnell, R-Kentucky, praised the effort, but said it shouldn’t have taken so long to get an agreement.

“We don’t think taxes should be going up on anyone but we all knew that if we did nothing they would be going up on everyone today,” he said. “We weren’t going to let that happen.”

If the bill doesn’t pass

There’s a lot at stake.

If the House doesn’t act and the Bush administration’s 2001 and 2003 tax cuts expire, broad tax increases will kick in, as will $110 billion in automatic cuts to domestic and military spending.

The nonpartisan Congressional Budget Office has predicted the combined effect could dampen economic growth by 0.5%, possibly tipping the U.S. economy back into a recession and driving unemployment from its current 7.7% back over 9%.

But if tax-averse House Republicans approve the bill Tuesday — when taxes have technically gone up — they can argue they’ve voted for a tax cut to bring rates back down, even after just a few hours. That could bring some more Republicans on board, one GOP source said.

But Gingrey, speaking Tuesday to CNN, said he does not believe his constituents will see it that way.

He’s concerned they will see it as “just more smoke and mirrors, and Congress pulls these stunts all the time,” Gingrey said. “Putting off the sequester for two months, kicking that can down the road yet again… this bill, as I see it so far, looks like it’s all about raising revenue, but very little, if anything, about cutting spending.”

Concerns persist

The White House budget office noted in September that sequestration was designed during the 2011 standoff over raising the federal debt ceiling as “a mechanism to force Congress to act on further deficit reduction” — a kind of doomsday device that was never meant to be triggered. But Congress failed to substitute other cuts by the end of 2012, forcing the government to wield what the budget office called “a blunt and indiscriminate instrument.”

In its place, the Senate plan would use $12 billion in new tax revenue to replace half the expected deficit reduction from the sequester and leave another $12 billion in spending cuts, split half-and-half between defense and domestic programs.

Conservative lobbyist Grover Norquist, whose Americans for Tax Reform group pushes candidates to sign a pledge never to raise taxes, said the plan “right now, as explained” would preserve most of the Bush tax cuts and wouldn’t violate his group’s pledge.

“Take the 84% of your winnings off the table,” Norquist told CNN. “We spent 12 years getting the Democrats to cede those tax cuts to the American people. Take them off the table. Then we go back and argue about making the tax cuts permanent for everyone.”

But Robert Reich, who served as labor secretary in the Clinton administration, said the $450,000 threshold “means the lion’s share of the burden of deficit reduction falls on the middle class, either in terms of higher taxes down the road or fewer government services.” In addition, he said, the plan does nothing to raise the federal debt ceiling just as the federal government bumps up against its borrowing limit.

And that, Arizona GOP Sen. John McCain told CNN, is likely to be “a whole new field of battle.”

“We just added 2.1 trillion in the last increase in the debt ceiling, and spending continues to go up,” McCain said. “I think there’s going to be a pretty big showdown the next time around when we go to the debt limit.”

 

-CNN Reporting

Senate leaders and the White House struck a last-minute deal to avert the feared fiscal cliff Monday night, with Vice President Joe Biden headed to the Capitol Hill to pitch the plan to fellow Democrats.

“Happy New Year,” Biden, who became the Democratic point man in the talks, told reporters. “Did you think we would be here New Year’s Eve?”

But the House of Representatives went home long before midnight, meaning nothing will get through Congress before the combination of tax increases and spending cuts Congress has been scrambling to head off starts to kick in.

A source familiar with the deal told CNN that the Senate proposal would put off the cuts for two months and keep the expiring Bush-era tax cuts for individuals earning less than $400,000 or couples earning less than $450,000. Taxes on inherited estates over $5 million will go up, and that exemption will be indexed for inflation.

Biden had been in negotiations with Senate Minority Leader Mitch McConnell, R-Kentucky, since Sunday afternoon. Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats, agreed to the plan in calls with President Barack Obama, a Democratic source said Monday night.

Economists warn the one-two punch of tax increases and spending cuts could push the U.S. economy back into recession and drive unemployment back over 9% by the end of 2013. Obama had chided lawmakers earlier Monday and warned that battles over spending still loomed, hitting a nerve among several Republicans in the Senate.

“They are close, but they’re not there yet,” Obama said. “And one thing we can count on with respect to this Congress is that if there is even one second left before you have to do what you’re supposed to do, they will use that last second.”

Obama said the plan on the table would prevent a tax increase for the overwhelming majority of Americans, extend the child tax and tuition credits for families, extend credits for clean-energy companies and extend unemployment benefits for 2 million people. But he said lawmakers still have to figure out how to mitigate the impact of the planned cuts.

And he warned that if Republicans think they can get future deficit reduction solely through spending cuts “that will hurt seniors, or hurt students, or hurt middle-class families without asking also equivalent sacrifice from millionaires or companies with a lot of lobbyists … they’ve got another think coming.”

That irked Republican senators who have been grappling for a deal with the Democratic majority in that chamber. Sen. Bob Corker, R-Tennessee, called the president’s comments “very unbecoming of where we are at this moment” and added, “My heart’s still pounding.”

“I know the president has fun heckling Congress,” Corker said. “I think he lost probably numbers of votes with what he did.”

And Sen. John McCain said Obama “sent a message of confrontation to Republicans” with his remarks.

“People have to wonder whether the president really wants issue resolved, or is it in his short-term political benefit for us to go over the cliff,” said McCain, R-Arizona.

A source familiar with the negotiations said the proposals under discussion would generate $600 billion by ending the Bush-era tax cuts on individuals with incomes above $400,000 and families over $450,000. The top tax rate would return to 39.6% from its current 35%.

The deal would also increase the estate tax to 40% from the current 35% level and cap itemized deductions for individuals with incomes above $250,000 and household income over $300,000, the source said.

In the House, GOP sources said there’s little practical difference in settling the issue Monday night versus Tuesday. But if House Republicans approve the bill on Tuesday — when taxes have technically gone up — they can argue they’ve voted for a tax cut to bring rates back down, even after just a few hours, GOP sources said. That could bring some more Republicans on board, one source said.

Earlier, a GOP source told CNN that the sticking point in talks was $24 billion in spending cuts being sought by Republicans in place of the $110 billion in automatic spending now set to take effect.

As Monday’s deadline drew nigh, federal agencies were preparing for the possibility of furloughing workers. At the Pentagon, a Defense Department official said as many as 800,000 civilian employees could be forced to take unpaid days off as the armed services face an expected $62 billion in cuts in 2013 — about 12% of its budget.

Those workers perform support tasks across the department, from maintaining aircraft and weapons systems to processing military payrolls and counseling families. The Pentagon believes it can operate for at least two months before any furloughs are necessary, but has to warn its civilian workforce that furloughs could be coming, the official said.

The White House budget office noted in September that sequestration was designed in 2011 as “a mechanism to force Congress to act on further deficit reduction” — a kind of doomsday device that was never meant to be triggered. But Congress failed to substitute other cuts by the end of 2012, forcing the government to wield what the budget office called “a blunt and indiscriminate instrument.”

Despite Obama’s backing, one leading Senate Democrat warned a deal could run into trouble — not only from House Republicans who have long opposed any tax increase, but also from liberals in the Senate who oppose allowing more high-income households to escape a tax increase.

“No deal is better than a bad deal, and this looks like a very bad deal the way this is shaping up,” Sen. Tom Harkin, D-Iowa, said.

Conservative lobbyist Grover Norquist, whose Americans for Tax Reform pushes candidates to sign a pledge never to raise taxes, said the plan “right now, as explained” would preserve most of the Bush tax cuts and wouldn’t violate his group’s pledge.

“Take the 84% of your winnings off the table,” Norquist told CNN. “We spent 12 years getting the Democrats to cede those tax cuts to the American people. Take them off the table. Then we go back and argue about making the tax cuts permanent for everyone.”

But Robert Reich, who served as labor secretary in the Clinton administration, said the $450,000 threshold “means the lion’s share of the burden of deficit reduction falls on the middle class, either in terms of higher taxes down the road or fewer government services.” In addition, he said, the plan does nothing to raise the federal debt ceiling just as the federal government bumps up against its borrowing limit.

And that, McCain told CNN, is likely to be “a whole new field of battle.”

“We just added 2.1 trillion in the last increase in the debt ceiling, and spending continues to go up,” McCain said. “I think there’s going to be a pretty big showdown the next time around when we go to the debt limit.”

 - CNN Reporting

An agreement to avert the “fiscal cliff” of automatic tax increases and spending cuts appears to be “within sight,” President Barack Obama said Monday.

“There are still issued left to resolve, but we are hopeful Congress can get it done,” Obama said.

The deal that was taking shape included an agreement to raise the income tax rate on top earners to what it was during President Bill Clinton’s last term in office, according to sources close to the process.

A GOP source told CNN negotiators are “very close” to a deal. The sticking point is $24 billion in spending cuts being sought by Republicans, according to the source.

“It’s like looking under the cushions at this point,” the source said. “If we can’t find that at this point, we should pack this place up.”

But one leading Senate Democrat warned the deal could run into trouble — not only from House Republicans who have long opposed any tax increase, but also from liberals in the Senate who oppose allowing more high-income households to escape a tax increase.

“No deal is better than a bad deal, and this looks like a very bad deal the way this is shaping up,” Sen. Tom Harkin, D-Iowa, said.

President Barack Obama was expected to discuss the issue in public remarks at the White House.

The proposal under discussion calls for rolling back tax rates on the highest-income earners to Clinton-era levels, increasing the estate tax rate, extending unemployment benefits and potentially putting off the $110 billion in automatic spending cuts called for in the legislation that created the cliff, according to sources close to the process.

A source familiar with the negotiations said the proposal under discussion would generate $600 billion in revenues by ending the Bush-era tax cuts on individuals with incomes above $400,000 and families over $450,000. Their tax rate would be 39.6%, the same as it was in 2000 during Clinton’s presidency. The top income rate is currently 35%.

The deal would also increase the estate tax to 40% from the current 35% level and cap itemized deductions for individuals with incomes above $250,000 and household income over $300,000, the source said.

The plan also includes temporary extensions of several tax credits, including the earned income tax credit, the child tax credit and some business tax credits, according to the source.

Obama and his Democratic allies waded into the debate about the fiscal cliff seeking tax increases on individuals making more than $200,000 and families with incomes above $250,000. He later offered to raise the threshold to $400,000 as part of a larger deal.

The two sides are closer to an agreement than they were on Sunday, the sources told CNN. But as the Senate opened for business Monday morning, Senate Majority Leader Harry Reid said negotiators remained apart on key issues.

“There are still some issues that need to be resolved before we can bring legislation to the floor,” the Nevada Democrat said.

Even if a deal is reached, it remains to be seen how the GOP-controlled House, which earlier refused to back a $1 million threshold for higher taxes, would respond to any deal.

In addition to the tax proposals, also under discussion is a proposal to delay the $110 billion in automatic cuts in domestic and military spending due over the next nine months, a draconian approach called sequester that was created by Congress to address the impact of high deficits and debt on the U.S. economy.

Republicans want a three-month delay while Democrats seek to forestall the cuts by one year, a Democratic source told CNN. Another Democratic source said the proposed three-month delay “can’t pass.”

The discussions occurred a day after negotiations hit a stumbling block over a Republican demand that a deal include changes to how Social Security benefits are adjusted for inflation.

Reid chastised Republicans for raising the Social Security issue, while Senate Minority Leader Mitch McConnell appealed to Vice President Joe Biden to help “jump-start” negotiations after complaining that he had received no response to an offer he put on the table.

“I want everyone to know I’m willing to get this done, but I need a dance partner,” said McConnell, R-Kentucky.

Reid, D-Nevada, had said earlier that McConnell had shown “absolutely good faith” in the talks, but “it’s just that we are apart on some pretty big issues.”

If nothing gets done before Monday at midnight, broad taxes hikes will kick in as the Bush-era cuts expire and the deep spending cuts will begin to take hold.

The nonpartisan Congressional Budget Office has predicted the combined effect could dampen economic growth by 0.5%, possibly tipping the U.S. economy into a recession and driving unemployment from its current 7.7% back over 9%.

Top-level sources on both sides of the negotiations said on condition of anonymity that talks are primarily in the hands of McConnell and Biden, and they are keeping Reid and House Speaker John Boehner, R-Ohio, informed.

On Sunday night, Boehner met with House GOP leaders and told them to sit tight and stick together as he awaits news on whether the Senate can strike a deal.

After the meeting, Rep. Tom Cole, R-Oklahoma, told reporters that Boehner said: “I’ve stayed out of those negotiations.”

“Every time we get involved in them, we sort of get burned, so we’re going to let the Senate work its will, see what they do and what they send us, and we’ll act accordingly,” he said.

As he headed home Sunday night, Reid was asked about progress, and he said: “Talk to Biden and McConnell.” On Monday, McConnell declined to say if he was optimistic.

Obama, meanwhile, laid the blame over the stalemate at the feet of Republicans.

“They say that the biggest priority is making sure that we deal with the deficit in a serious way. But the way they’re behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected,” he said Sunday on NBC’s “Meet The Press.”

“That seems to be their only overriding, unifying theme.”

During the interview, Obama said he was willing to consider changing the way inflation is calculated for Social Security benefits, meaning that future Social Security recipients would receive less money over time, even though it was “highly unpopular among Democrats” and opposed by the AARP, the powerful lobby for seniors.

“In pursuit of strengthening Social Security for the long term, I’m willing to make those decisions,” Obama said.

“What I’m not willing to do is to have the entire burden of deficit reduction rest on the shoulders of seniors, making students pay higher student loan rates, ruining our capacity to invest in things like basic research that help our economy grow. Those are the things that I’m not willing to do.”

But a Democratic source, who did not want to be identified because of the closed nature of the talks, said members understand Obama proposed making inflation adjustments to Social Security benefits as an element of a larger deal that also would change how the federal debt ceiling is adjusted — an element no longer included in the plans.

Most Democrats oppose the inflation adjustment to Social Security, known as “chained CPI,” but many were wiling to go along with it as part of a larger deal, the source said.

Sen. Chuck Schumer, D-New York, told ABC’s “This Week” that he thought the chances of a short-term, last-minute deal brokered by Senate leaders were better than 50-50, while Sen. Lindsey Graham, R-South Carolina, told CNN that Obama will probably win the fiscal cliff battle, but it will do little to help the nation’s deficit problem.

“The president will get a political victory, a trophy for the president politically, but it will not change our debt situation or reduce our deficit in any meaningful way,” Graham said. “It will be a political victory that is hollow in nature when it comes to preventing our country from becoming Greece.”

Other Republicans argued Sunday that Obama’s plan hasn’t done enough to limit spending.

“The president is doing nothing about the addiction that his administration has to spending. He’s the spender in chief,” Sen. John Barrasso of Wyoming said on CNN’s “State of the Union.”
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A deal may be emerging in the “fiscal cliff” negotiations.

The Los Angeles Times reports the plan would raise taxes on incomes, including investments, for taxpayers making more than $450,000 a year.

But the two sides reportedly remain divided on what to do about the automatic spending cuts that make up part of the year-end “fiscal cliff.”

President Obama is expected to speak from the White House this afternoon with the latest developments.

The U.S. Senate reconvenes this morning with just a few hours left to avert the “fiscal cliff” crisis.

There is still no sign of an agreement to extend the Bush tax cuts.

The sticking point is President Obama’s demand that the tax cuts for wealthier Americans be eliminated.

Congressional Democrats are offering to impose the tax hike on people earning more than $450,000 a year; that’s $200,000 more than the president’s income threshold.

Congressional Republicans say no one’s taxes should be raised while the economy is still so weak; and each party blames the other for the impasse.

In the absence of a last-minute compromise, all taxpaying Americans will see their federal withholding increase starting tomorrow; a typical household will see about a $40-per-week reduction in take-home pay.

Local News
12/31/12

Political analyst talks fiscal cliff

WGN Political Analyst Paul Lisnek gives us the latest update on fiscal cliff neogotiations.

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