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Vice President Joe Biden speaks to reporters after a Senate Democratic caucus meeting New Year's Eve.
Associated Press/Photo by Alex Brandon
Vice President Joe Biden speaks to reporters after a Senate Democratic caucus meeting New Year's Eve.

Senate votes to increase taxes

Congress | Congress misses deadline to avoid fiscal cliff but White House and Senate Republicans reach deal

WASHINGTON—Two hours after the nation technically went over the “fiscal cliff” that has bedeviled Congress for the last several weeks, the U.S. Senate approved a plan to substantially raise taxes for the first time in 20 years.

As the New Year’s Day clock inched toward 2 a.m., two hours after a series of substantial tax increases and spending cuts were slated to take effect, senators voted 89 to 8 to allow tax rates to increase on incomes totaling more than $400,000 for individuals and $450,000 for families. The House is set to take up the measure on Tuesday.

The bill, largely brokered by Republican Senate Leader Mitch McConnell and Vice President Joe Biden, would prevent tax hikes from hitting a larger swath of Americans. But the deal is only a half-measure.

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Instead of tackling the federal government’s spending problems, the deal delays for two months the automatic $110 billion in spending cuts slated to occur on Jan. 1. Those mandated cuts had combined with the scheduled year-end tax increases to form what has been dubbed the “fiscal cliff” by policy wonks who have warned that the one-two punch would hurl the nation back into a recession.

Lawmakers, in extending the expiring Bush-era tax cuts for families with incomes below $450,000, will congratulate themselves and claim they avoided the fiscal cliff. But they also once again kicked the can down the road when it comes to spending. The deal fails to reduce the nation’s deficit and sets up additional congressional showdowns, likely to occur in March, over the debt ceiling, a government shutdown, and the delayed spending reductions.

The deal hammered out by Sen. McConnell and Vice President Biden on New Year’s Eve is far from a grand bargain. As the details emerged on Monday, lawmakers from both ends of the ideological spectrum expressed reservations. Republicans were angered that it did not address entitlement reform while some Democrats bemoaned the fact that the final deal did not raise taxes on more individuals. President Barack Obama has long pledged to raise revenue by increasing taxes on those making more than $250,000.

The compromise increased the tax rate to 39.6 percent from 35 percent for the over $400,000 earners. It also raises taxes on capital gains and dividends for those households.

In a nod to President Obama’s original intent, the deal does limit personal exemptions and itemized deductions for individuals making $250,000 and $300,000 for couples. It also increases from 35 percent to 40 percent the estate tax on estates worth more than $5 million.

Some Democrats also protested these estate tax parameters, calling for similar taxes on estates worth less than $5 million. Despite the bipartisan complaints, only eight senators opposed the deal. Five Republicans voted no, including Sen. Marco Rubio of Florida, who is considered a potential presidential candidate for 2016.

Some Democrats may have protested, but the deal’s tax increases and its delaying of spending cuts can only be viewed as a victory for big government. That is why it faces a murky future in the Republican-controlled House.

Republicans supporting the plan will tout how it makes the Bush tax cuts permanent for millions of middle and lower income households. The deal also increases federal coffers by $600 billion over the next decade—less than the $1.6 trillion in revenue increases sought by Obama.

But, despite these victories, many House Republicans, who voted down a tax increase for millionaires just before Christmas, likely will attack the Senate-passed deal for its failure to decrease the deficit or to tackle entitlement reform.

House Speaker John Boehner, R-Ohio, said in a statement that “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.”

A hint at fiscal conservatives reaction to the deal could be found in the statement of opposition released Monday by Heritage Action. “This kick-the-can approach, necessitated by a president who refuses to stop campaigning and start seriously addressing our nation’s fiscal problems, is not an adequate solution to America’s coming fiscal crisis, which is a result of overspending, not under-taxing,” the conservative group said in a written statement in which it warned that the vote would be included in their annual rating of lawmakers.

The early morning Senate vote capped a 24-hour period that was busier in Washington than the normal New Year’s Eve. It included a campaign-style rally held by Obama at the White House that featured as living props a contingent of middle-income Americans facing a tax increase at midnight. While members of Congress negotiated, Obama lectured them from afar.

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