Story Summary

‘Fiscal Cliff’

Democratic and Republican lawmakers are locked in a debate over a so-called “fiscal cliff,” where some automatic spending cuts will take place unless action is taken.

There are fears that if the country goes over the cliff, a second recession will take place.

Congress has until Dec. 31.

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Speaker John Boehner Records the Weekly Republican AddressWASHINGTON (CNN) — Partisan bickering, acrimony, mistrust, communication breakdowns, lines drawn in the sand and 11th-hour compromises are the new normal on Capitol Hill.

Managing to function in a constant state of dysfunction while fiercely fighting to eke out a better deal during negotiations is what happens when the stakes are high and people involved are deeply vested.

“From the outside it may look like insanity. But it is more complex than that … both sides are testing their walk away point,” said Peter Johnston, a negotiation expert and the author of “Negotiating with Giants.”

Just where that point rests will be tested anew in just a few weeks.

Congress narrowly averted the worst aspects of the fiscal cliff in a last-ditch vote just before the steepest cuts in domestic spending were to take effect.

Those cuts, or sequester, had been a centerpiece of the political debate on fiscal matters for months and were cut out of deal negotiated by the White House and the Senate at the last minute. But they are coming around again when Congress revisits the issue of debt and deficits in February.

Both sides are already digging in.

In the moments after Congress averted the fiscal cliff with an agreement on taxes, President Barack Obama called for “a little less drama, a little less brinkmanship” in future dealings.

But he also made it clear that he would “not have another debate” with lawmakers over “whether they should pay the bills that they’ve already racked up through the laws that they passed.”

House Speaker John Boehner swore off trying to negotiate one-on-one with Obama after fruitless fiscal cliff talks.

Vice President Joe Biden and Senate Republican leader Mitch McConnell, veterans of countless Capitol Hill negotiations, stepped in to eventually broker a compromise that was approved by lawmakers.

Negotiations on big issues seem to follow a familiar pattern.

“The language that’s coming into congressional negotiations is taking on the tone of terrorist negotiations,” said Robert Benjamin, a professional mediator. “People lament this and say, ‘Isn’t this terrible?'”

But negotiation, while critical for human survival, has always come on the backside of wars,” he said.

And Congress is certainly showing its battle scars.

Recent power shifts following bruising national and local elections have produced hardening political lines, making compromise difficult compared to more cooperative-minded eras in Washington.

Even traditionally less partisan issues, like the appointment of a defense secretary or spending on road repair, have become acutely confrontational.

Federal spending in a time of record budget deficits is politically sensitive with many new members of Congress in recent years elected to bring fiscal order to Washington and impatient for change.

Related agreements are elusive until the nation’s back is against a wall.

Bitter and protracted wrangling over raising the federal borrowing limit, or debt ceiling, in the summer of 2011 led to a vote just hours before the United States would have defaulted on its financial obligations.

As it was, one Wall Street agency downgraded the gold-plated U.S. credit rating in the aftermath of the political fight over debt.

That same year, Congress took consideration of a hotly contested payroll tax cut down to the wire.

The problem with this method of negotiation is “you get to the 11th hour and you get people who are really tired in a room on a complex set off issues and … it’s not as finely tuned as it could be,” Johnston said. “It’s hard to get creative to get a deal when the working relationship is poor and there’s a lack of trust.”

And that lack of trust is what makes the current climate feel different.

“There is so little trust. It’s not just Boehner and the president who don’t trust each other. There are people who don’t trust Obama, (Senate Majority Leader Harry) Reid or McConnell,” CNN senior political analyst David Gergen said. “It’s certainly extraordinary. Historians would say it’s unique. We’ve had brinksmanship in the past but we’ve never had government by brinksmanship.”

Perhaps not, but Americans, whose earliest heroes exemplified frontier perseverance, especially, may be resistant to compromise and tend to embrace it only after an especially excruciating experience, Benjamin said.

“The question you have to ask yourself is would John Wayne negotiate?” Benjamin said. “The John Wayne way of thinking is that ‘I will prove to you I’m right or die trying.'”

Benjamin said that approach has been successful in some cases but may be “our greatest weakness” as issues become more complex.

An innate aversion to compromise further complicates matters, Benjamin said. People inherently mistrust lawyers and politicians, in part, because they are people whose jobs depend on making a deal.

“Compromise is being weak and in some cases being seen as a sell out as you see in the statements of the tea party and the (extreme) left,” Benjamin said of criticism faced by lawmakers who try to make deals.

“American culture is founded on the notions of individual initiative and determination and stubbornness. We admire the entrepreneur who is determined, but that same person is also stubborn.”

But things can’t continue on this path.

“Basic negotiations theory teaches what you want to reach is a win-win,” Gergen said.

In the recent series of high-stakes negotiations in Washington “there was no win, win in either case,” he said.

“Everybody ought to take a time out and spend a week with the best negotiators and start again,” Gergen said.

 

By Halimah Abdullah

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Pres. Obama Fiscal Cliff Presser(CNN)-

President Barack Obama has signed into law a bill to avert the fiscal cliff, a day after the House and Senate approved the much-debated legislation.

Obama, who returned to his family vacation in Hawaii after Tuesday’s House vote, signed the bill via autopen on Wednesday.

But new battles over taxes and spending await Washington in the next few weeks.

Congress averted that self-built precipice late Tuesday when the House voted to stave off widespread tax increases and deep spending cuts by accepting a brokered Senate compromise. It makes permanent the Bush administration’s tax cuts for individuals earning less than $400,000 per year and couples earning less than $450,000.

It raises rates on those who make more than that from 35% to 39.6%, bringing back a top tax bracket from the Clinton administration, and will raise roughly $600 billion in new revenues over 10 years, according to various estimates.

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

Economists had predicted the combination of those tax increases and spending cuts could have thrown the U.S. economy back into recession and driven unemployment back into the 9% range.

Meanwhile, a new Congress takes office on Thursday, and lawmakers will soon be confronted by the need to raise the federal debt ceiling and what to do about the still-hanging sequester — a legacy of the last battle over the debt ceiling, in 2011.

“The sum total of all the budget agreements we’ve reached so far proves that there is a path forward that is possible, if we focus not on our politics but on what’s right for the country,” Obama told reporters late Tuesday, after the House approved the fiscal cliff deal. “And the one thing that I think, hopefully, in the new year, we’ll focus on is seeing if we can put a package like this together with a little bit less drama, a little less brinksmanship, not scare the heck out of folks quite as much.”

The Bush tax cuts expired at midnight Monday, while sequestration had been scheduled to start when federal offices reopened Wednesday.

World markets rose after the late-night vote. U.S. stocks jumped, too, with the Dow Jones Industrial Average rising nearly 2% by mid-afternoon.

Tuesday night’s 257-167 vote saw Boehner, R-Ohio, and about a third of the GOP majority lining up with Democrats against most of their own caucus, including Majority Leader Eric Cantor and party whip Kevin McCarthy. Rep. Nan Hayworth, an outgoing Republican representative from New York, said she was a “reluctant yes.”

“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,” Hayworth said. “I’ll take that at this point.”

The Senate plan was brokered by Vice President Joe Biden and Senate Minority Leader Mitch McConnell, R-Kentucky, and it passed that Democratic-led chamber 89-8. But many House Republicans complained the bill did too little to cut spending while raising taxes for them to support it.

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.”

But Rep. Jeff Landry, R-Louisiana, told CNN’s “Early Start” that Obama convinced Boehner “to undo everything he promised he would do” after the 2010 elections that gave the GOP control of the House.

“They did a debt ceiling deal, gave the president $2.1 trillion,” Landry said. “They turned that deal off for two months. That’s going to be another fight on top of the sequestration, a debt ceiling fight.”

Other Republicans warned that as they did in 2011, they’ll be demanding additional cuts before they agree to raise the federal cap on borrowing.

“The president has maxed out his credit card, and he is not going to get an unlimited credit card,” Sen. John Barrasso, R-Wyoming, told CNN. “We’re going to talk specifically about cuts and specifically focused on tax reform as well as helping to save and strengthen Medicare and Social Security. And that’s the next discussion we’re going to have in Washington.”

The federal government bumped up against its $16.4 trillion debt ceiling on Monday and has about two months before it runs out of ways to shuffle money around to keep Washington within its legal borrowing limit. Obama had sought to resolve the issue as part of the fiscal cliff negotiations, but the issue never made it to a final bill.

Tuesday night, the president warned Congress that he will not tolerate another round of brinksmanship that could have “catastrophic” effects on the global economy.

“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.

How they voted: House | Senate

The last debt-ceiling battle led to the sequester, a kind of fiscal doomsday device that Congress was supposed to disarm by agreeing to more than $1 trillion in other cuts over the next decade. They didn’t, leaving federal agencies preparing to slash spending by $110 billion by the end of the 2013 budget year.

Before Tuesday night, the Defense Department had been preparing to issue furlough notices for its entire civilian work force of 800,000. Those notices were stayed on Wednesday — 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.

While the deal gives Obama bragging rights for raising income taxes on the wealthiest Americans — the first rate increase for any Americans since 1993 — 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.

And 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.

The legislation also caps itemized deductions for individuals making $250,000 and for married couples making $300,000. Taxes on inherited estates over $5 million will go up to 40% from 35%, and that threshold will be indexed for inflation.

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.

By Matt Smith

CNN’s Dana Bash, Rich Barbieri, Charles Riley, Dana Ford, Holly Yan, Josh Levs, Jessica Yellin, Deirdre Walsh and Ted Barrett contributed to this report.

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Speaker John Boehner Records the Weekly Republican Address

House Speaker John Boehner in the Weekly Republican Address says the onus for solving the the fiscal cliff issue is on President Obama.
Boehner recorded his addres in the Capitol befroe he left for the Christmas break on December 21, 2012. (CNN)

Washington (CNN) — For all the stalemate in the fiscal cliff negotiations, there were some heated moments, too.

A Democratic source familiar with one particular exchange told CNN that Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell were sitting on a sofa in the White House.

House Speaker John Boehner breezed in and his first words to Reid were “Go f— yourself.”

Boehner’s comment came after Reid took to the Senate floor on Thursday and characterized the House speaker’s handling of his chamber as a “dictatorship.”

Reid responded to Boehner’s confrontational tone by laughing, the Democratic source said.

Both men described the moment to members of their caucus.

The exchange happened at the White House on Friday – the day the four Capitol Hill leaders, including House Minority Leader Nancy Pelosi – met with President Barack Obama, Vice President Joe Biden, and Treasury Secretary Timothy Geithner.

On the Senate floor later, Reid said the meeting had been “constructive.”

“There was not a lot of hilarity in the meeting, everyone knows how important it is,” Reid said. “It was a very serious meeting and it took an extended period of time.”

 

 

By CNN Political Unit

– CNN’s Dana Bash and Gregory Wallace contributed to this report

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Congress

Courtesy: CNN

WASHINGTON, D.C.-

The House of Representatives voted Tuesday night to approve a Senate bill to avert a feared fiscal cliff.

The measure that sought to maintain tax cuts for most Americans but increase rates on the wealthy passed the Democratic-led Senate overwhelmingly early in the day.

There was discussion about amending the Senate bill by adding spending cuts, but in the end, House lawmakers voted on the bill as written — a so-called up or down vote.

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

“I’d say let’s take the Senate deal, fight another day,” Rep. Tom Cole, R-Oklahoma, told CNN before the House vote. He predicted the House would pass the bill with a “pretty strong bipartisan majority.”

“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.”

The timing of the vote was crucial, as a new Congress is set to be sworn in Thursday.

The legislation averted much of the fiscal cliff’s negative near-term economic impact by extending the Bush-era tax cuts for the majority of Americans. It also extends long-term unemployment benefits that were set to expire.

Had the House not acted, and the tax cuts enacted last decade expired fully, broad tax increases would have kicked in, as would $110 billion in automatic cuts to domestic and military spending.

Dana Ford and Josh Levs reported from Atlanta; Dana Bash reported from Washington. CNN’s Ed Payne, Matt Smith, Mike Pearson, Jessica Yellin, Deirdre Walsh, Lisa Desjardins, Ted Barrett and Ashley Killough contributed to this report.

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Congress

Courtesy: CNN

WASHINGTON, D.C. (CNN)-

 A last-ditch Senate compromise to avert the fiscal cliff appeared to be in jeopardy with House Republicans slamming the deal negotiated with the White House and demanding more must be done to cut spending.

The measure that sought to maintain tax cuts for most Americans but increase rates on the wealthy passed the Democratic-led Senate overwhelmingly early on Tuesday. But Republican frustration over deficit-reduction muddled prospects for final action in the GOP-controlled House.

“This is not a good deal,” said Rep. Steve LaTourette of Ohio. “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.”

House Republicans met for a second time on Tuesday to discuss the next steps on the fiscal cliff — whether to consider the bill as written — a so-called up or down vote — or amend it and send it back to the Senate.

Majority Leader Eric Cantor, R-Virginia, told reporters that he did not support the bill as passed by the Senate, dealing a major blow to its chances in the House.

Time was crucial, however, as a new Congress is set to be sworn-in on Thursday. Congress would have to start the process anew if there is no action on the fiscal cliff by then.

Rep. Nan Hayworth, R-New York, said she was hopeful her party would “come up with an alternative, an amendment that we can present to the Senate.”

“We were elected and then re-elected as a majority to bring the federal government to the right size, to respect every tax dollar,” said Hayworth, who lost her re-election bid.

House Minority Leader Nancy Pelosi told reporters that Democrats were eager to see what Republicans would put on the floor.

“Up until now, (Speaker John Boehner) has said when the Senate acts, we will have a vote in the House. That is what he said. That is what we expect. That is what the American people deserve, so we look forward now … to see what the timing will be for a straight up or down vote on what passed 89-8 last night in the United States Senate,” Pelosi said.

Later she tweeted: “Strong majority of House Ds support bipartisan Senate bill … Confident it will pass if @SpeakerBoehner allows up/down vote.”

The Senate adjourned until noon on Wednesday.

Boehner has not yet indicated when a vote might happen. Following the first meeting with his membership, Boehner released a statement through his spokesman, saying that conversations with representatives will continue.

“The speaker and (Cantor) laid out options to the members and listened to feedback. The lack of spending cuts in the Senate bill was a universal concern amongst members in today’s meeting,” it read.

Not all congressional Democrats were happy with the proposal that would maintain Bush-era tax cuts that expired at midnight on Monday.

The Senate plan would maintain tax cuts for individuals earning less than $400,000 and couples earning less than $450,000. It would raise tax rates for those over those levels — marking the first time in two decades the rates jump for the wealthiest Americans.

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.

President picks up bragging rights, breaks a promise

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.”

An early 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.

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%.

“This Congress unfortunately has been most known for a unwillingness to compromise, an unwillingness to come together to act on behalf of the American people,” said House Democratic Whip Steny Hoyer. “Today is Jan 1st. Taxes will be going up on everybody in America if we don’t act.”

By Dana Ford and Josh Levs

CNN’s Ed Payne, Matt Smith, Mike Pearson, Jessica Yellin, Dana Bash, Deirdre Walsh, Lisa Desjardins, Ted Barrett and Ashley Killough contributed to this report.

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(CNN) — 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 middle of the night, 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.

The bill faces an uncertain future in the Republican-controlled House, which convenes at noon.

Some GOP lawmakers, including Reps. Phil Gingrey of Georgia and and Tim Huelskamp of Kansas, told CNN Tuesday they won’t support the bill.

“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.

It would mark the first time in two decades that tax rates jump for the wealthiest Americans — giving some bragging rights to President Barack Obama, who has long insisted on such a move.

But it also leaves him breaking a promise. The president had vowed to raise tax rates for the top-earning 2% of Americans, including those with household income above $250,000.

“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.

A vote could come as early as New Year’s Day. The House is scheduled to convene at noon.

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.”

 

By Josh Levs and Ed Payne

CNN’s Matt Smith, Mike Pearson, Jessica Yellin, Dana Bash, Deirdre Walsh, Lisa Desjardins, Ted Barrett and Ashley Killough contributed to this report.

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™ & © 2013 Cable News Network, Inc., a Time Warner Company. All rights reserved.

WASHINGTON, D.C. (CNN)-

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.”

By Matt Smith

CNN’s Mike Pearson, Jessica Yellin, Dana Bash, Deirdre Walsh, Lisa Desjardins, Ted Barrett and Ashley Killough contributed to this report.

The-CNN-Wire/Atlanta/+1-404-827-WIRE(9473)
™ & ©2012 Cable News Network, Inc., a Time Warner Company. All rights reserved.

SACRAMENTO-

The fiscal cliff didn’t wait until midnight to arrive for state worker Catherine Enfield.

“My paycheck has already appeared in my bank account this morning and I noticed it’s about 100 dollars less,” Enfield told FOX40.

Enfield, a CalPers employee, one of the estimated 160 million American workers expected to take it in the wallet because of the political quagmire.

“A hundred dollars might not seem like much. but when two-thirds of my paycheck goes to my mortgage,” said Enfield.

State workers only get one pay check a month, no way to spread the pain of smaller checks over a few weeks.

“By the end of month, I’m already scraping through my couch pillows looking for change to survive until the end of the month, so a hundred bucks is a hundred bucks,” said Enfield.

Enfield survived years of furloughs and knows how to stretch a buck.

“I’ve already reduced my type of cable, but I might have to axe cable all together, or change my phone plan you have to think about where can you cut things here and there,” she said.

While Enfield hasn’t made her own fiscal plan yet, she’s got one for the next election.

“As far as I’m concerned, my vote is going to be with those politicians that worked toward compromises, instead of standing firm and not budging and being so stubborn,” Enfield said.

(CNN) –

 The feared fiscal cliff was at hand Monday night, with nothing expected to pass Congress before a combination of tax increases and spending cuts starts to kick in at midnight.

A deal to avert that combination, which economists warn could push the U.S. economy back into recession, was “within sight” on Monday afternoon, President Barack Obama said. And in the Senate, Minority Leader Mitch McConnell told members that they were “very, very close” to a deal, having worked out an agreement on taxes.

Sen. Kay Bailey Hutchison, R-Texas, said senators “are hoping to vote tonight” on some package to avert the cliff. But the House of Representatives adjourned without voting on anything Monday — and Obama’s remarks earlier Monday, in which he chided Congress and warned that battles over spending still loomed, hit 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 deal now on the table would prevent a tax increase for the overwhelming majority of Americans, extend the child tax and tuition credits for families as well as those for clean-energy companies, and extend unemployment benefits for 2 million people. But even then, he said lawmakers still have to figure out how to mitigate the possible damage from sharp spending cuts that are scheduled to start biting January 2, when the federal government reopens after the New Year’s holiday.

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 combative talk drew anger from 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.

The nonpartisan Congressional Budget Office has predicted the combined effect of the tax increases and budget “sequestration” — across-the-board budget cuts set up as part of the 2011 standoff over raising the federal debt ceiling — could dampen economic growth by 0.5%. That could tip the U.S. economy into a recession and driving unemployment from its current 7.7% back over 9%, the CBO estimated.

The tax proposals under discussion late Monday call 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 President Bill 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.

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 deeper cuts.

“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.”

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.”

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.”

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.

By Matt Smith

CNN’s Mike Pearson, Jessica Yellin, Dana Bash, Deirdre Walsh, Lisa Desjardins, Ted Barrett and Ashley Killough contributed to this report.

The-CNN-Wire/Atlanta/+1-404-827-WIRE(9473)
™ & ©2012 Cable News Network, Inc., a Time Warner Company. All rights reserved.

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