UPDATE: President Obama Signs ‘Fiscal Cliff’ Deal Into Law

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UPDATE: 11:54 P.M. EST 1-2-2013

President Obama has signed the “Fiscal Cliff” deal, formally called the American Taxpayer Relief Act, into law, reports Reuters. The POTUS, who is still vacationing in Hawaii, signed the bill with an autopen, a mechanical device that copies his signature.

UPDATE: 11:54 P.M. EST 1-1-2013

The deal is done.

In a 257-167 vote, that included 151 Republican and 16 Democratic “nays,” the Republicans blinked first and Congress passed the first tax increase in 20 years, saving the nation from the dreaded ‘Fiscal Cliff.’

Included in the Democratic win column was an extension of unemployment benefits and tax cuts that were in President Barack Obama’s stimulus plan. Republican victories included “a permanent fix to the alternative minimum tax and estate tax,” reports Politico.

Boehner (R-Ohio), could not rally enough support from conservatives who refused to agree to the tax increase. But House Democrats pushed the deal through.

Boehner cast a rare Speaker vote in favor of the bill, while Majority Leader Eric Cantor (R-VA) voted no, exposing a widening rift within the Republican Party.

What’s In The ‘Fiscal Cliff’ Plan?

•Permanently extends the middle-class tax cuts and also extends credits for working families, with additional measures to protect families and promote economic growth.

• Permanent extension of the middle class tax cuts: This will provide certainty for 114 million households including lower tax rates, an expanded Child Tax Credit, and marriage penalty relief—steps that together will prevent the typical family of four from seeing a $2,200 tax increase next year. In addition, it includes a permanent Alternative Minimum Tax (AMT) fix.

• Most progressive income tax code in decades: By raising income tax rates on the wealthiest and keeping taxes low for the middle class, the agreement will ensure we have the most progressive income tax code in decades.

• Extension of Emergency Unemployment Insurance benefits for 2 million people: The agreement will prevent 2 million people from losing UI benefits in January by extending emergency unemployment insurance benefits for one year.

• Extension of tax cuts for 25 million working families and students: The deal extends President Obama’s expansions of the Child Tax Credit, Earned Income Tax Credit, and the President’s new American Opportunity Tax Credit, which helps families pay for college. The President fought hard to extend these credits, overcoming Republican insistence that income taxes go up by an average of $1,000 for 25 million working families and students. The agreement would extend them for five years.

• Extension of renewable energy incentives, the R&E tax credit and other business incentives: The agreement extends tax relief for businesses through the end of next year. This means extending the Production Tax Credit, a key incentive for renewable energy that many Republicans had been trying to end, as well as the Research & Experimentation tax credit. In addition, the agreement extends 50 percent bonus depreciation, a cost-effective temporary measure to support investment and growth. All of these would be extended through the end of 2013.

• Fixes the SGR (“doc fix”) with no cuts to the Affordable Care Act or to beneficiaries: The agreement avoids a 27 percent cut to reimbursements for doctors seeing Medicare patients for 2013 by fixing the sustainable growth rate formula through the end of next year (the “doc fix”). The President stood firm against Republican proposals to pay for this fix with cuts to the Affordable Care Act or the beneficiaries.

• Postpones the sequester for two months, paid for with $1 of revenue for every $1 of spending, with the spending balanced between defense and domestic: The agreement saves $24 billion, half in revenue and half from spending cuts which are divided equally between defense and nondefense, in order to delay the sequester for two months. This will give Congress time to work on a balanced plan to end the sequester permanently through a combination of additional revenue and spending cuts in a balanced manner.

•Raises $620 billion in revenue according to Congress’ Joint Committee on Taxation by achieving the President’s goal of asking the wealthiest 2 percent of Americans to pay more while protecting 98 percent of families and 97 percent of small businesses from any income tax increase.

• Restores the 39.6 percent rate for high-income households, as in the 1990s: The top rate would return to 39.6 percent for singles with incomes above $400,000 and married couples with incomes above $450,000.

• Capital gains rates for high-income households return to Clinton-era levels: The capital gains rate would return to what it was under President Clinton, 20 percent. Counting the 3.8 percent surcharge from the Affordable Care Act, dividends and capital gains would be taxed at a rate of 23.8 percent for high-income households. These tax rates would apply to singles above $400,000 and couples above $450,000.

• Reduced tax benefits for households making over $250,000 (for singles) and $300,000 (for couples): The agreement reinstates the Clinton-era limits on high-income tax benefits, the phaseout of itemized deductions (“Pease”) and the Personal Exemption Phaseout (“PEP”), for couples with incomes over $300,000 and singles with incomes over $250,000. These two provisions reduce tax benefits for high-income households. This sets the stage for future balanced approaches to deficit reduction, which could include additional revenue through tax reforms that reduce tax benefits for Americans making over $250,000.

• Raises tax rates on the wealthiest estates: The agreement raises the tax rate on the wealthiest estates – worth upwards of $5 million per person – from 35 percent to 40 percent, in contrast to Republican proposals to continue the current estate tax levels.

• The agreement’s $620 billion in revenue is 85 percent of the amount raised by the Senate-passed bill, if that bill had been enacted and made permanent: The agreement locks in $620 billion in high-income revenue over the next ten years. In contrast, the bill passed by Democrats in the Senate achieved approximately $70 billion through one-year provisions; these same provisions could have raised a total of $715 billion over ten years if Congress acted again to extend it permanently. However, the Senate bill itself locked in only one year’s worth of savings so would have required additional extensions to achieve those savings.

• Part of a balanced process of deficit reduction and stronger growth.

• Strengthens our recovery next year by cutting taxes for the middle-class: The independent, non-partisan Congressional Budget Office (CBO) estimated that allowing the full effect of the “fiscal cliff” would cause our economy to enter a recession and actually shrink next year primarily as a result of higher taxes on the middle class and across-the-board spending cuts. The final agreement prevents taxes from rising on the middle class and delays the across-the-board “sequester.”

• Temporary measures to support consumer spending and business investment: Extending unemployment insurance is one of the more effective ways to encourage consumer spending. And bonus depreciation will give companies incentives to invest.

• Provides greater economic certainty for families and businesses: The agreement will make it easier for families and businesses to plan and will help our economy grow.

• Cuts the deficit and reduces the debt as a share of the economy over the next five years: Since April last year, the President has signed into law 1.7 trillion in deficit reduction, including $700 billion in spending cuts from enacted appropriations bills in 2011 and 2012, and $1 trillion in the Budget Control Act. This tax agreement not only further reduces the deficit, but raises $620 in new revenue from high-income households. Together with a strengthening economy these steps will bring down the deficit as a share of the economy over the next five years.

• Establishes a foundation for additional balanced, pro-growth deficit reduction through tax and entitlement reform: The agreement leaves substantial scope for reducing tax expenditures for high-income households, reforming corporate taxes to broaden the base and cut the rate to make America more competitive, and to take further steps to reform entitlements.

•Extends the farm bill through the end of the fiscal year, averting a sharp rise in milk prices at the beginning of 2013.

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UPDATE: 6:31 P.M. EST

House Speaker John Boehner has presented two options to modify the dramatic, last minute Fiscal Cliff deal brokered by Senate Minority Leader Mitch McConnell and Vice-President Joe Biden, and passed by the Senate with a decisive 89-8 vote, reports the Wall Street Journal.

According to an aide, one option would be to add spending cuts to the bill. Support for this option by members of the House will be weighed, and if it is insufficient, a vote will be taken on the existing deal.

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UPDATE: 2:31 A.M. EST

With an overwhelming vote, 89-8, the Senate decided early Tuesday morning to end the Bush tax cuts for families earning more than $450,000 per year, reports Politico.

They also voted to postpone the sequester cuts for two months, in addition to other provisions. Some Washington insiders are calling this a win for the Democratic Party, even though President Barack Obama initially said that he wanted to end tax cuts for families earning over $250,000.

Boehner said that he would stick to his word and consider the deal if it passed the Senate and now it has. The House could vote as early as New Year’s Day.

Even though we have technically gone “over the cliff,” with the deal in place, any damage should be mitigated.

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Ending one of the most melodramatic political sagas of 2012, Congress and President Barack Obama have finally reached a deal to avoid the country plunging over a fiscal cliff into another recession with only 3 hours to spare, reports CBS News.

See the known details below:

  • Tax rates: current tax rates will be extended for all wage earners making below $400,000 and couples making below $450,000.This was a key concession for both Republicans and Democrats. Democrats wanted the threshold for tax increases to rest at $250,000 and Republicans didn’t want marginal tax rates to increase for anyone.
  • The estate tax: it was set to increase from rom 35 percent to 55 percent in 2013. Instead, the compromise sets the new rate at 40 percent with the first $5 million worth of property exempt from being taxed.
  • Capital gains tax: Capital gains and dividend tax rates will increase from 15 to 20 percent.
  • Alternative Minimum Tax: a permanent fix to the tax that would hit middle class families
  • “Doc Fix”: doctors will be shielded from a massive reimbursement gap for treating Medicare patients.
  • Unemployment benefits: unemployed workers will receive their benefits which expired over the weekend.
  • Renewable energy tax credit: the tax credit for renewable energy companies will be extended for another year.

The president ended his annual Hawaiian vacation to come back to Washington to hammer out a deal. According to Beltway sources, Vice-President Joe Biden has heavily impacted negotiations and has been working furiously through the night to reach a bipartisanship agreement.

Read more at CBS News.

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