A deal on the government's budget priorities has been reached, raising taxes on the wealthy, extending long-term unemployment benefits, and preventing a cut in fees for doctors who treat Medicare patients.
While the deal does extend the Bush-era tax rates for the middle class, most Americans will still see a tax hike this year. That's because both Democrats and Republicans agreed to let the payroll tax holiday enacted two years ago to expire, meaning payroll taxes will go up to 6.2 percent from 4.2 percent.
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Cong. Brian Higgins (D- Buffalo)
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Prof. Bruce Bryski, Buffalo St. College
What's In The Fiscal Cliff Deal:
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.
"Milk cliff" avoided: Subsidies for milk are extended, averting looming price hikes.
Congressional pay freeze: A scheduled salary bump for members of Congress will not happen
Tucked into the 150-plus page bill are several tax perks for businesses - businesses you probably didn't even know needed tax perks.
To be clear, these are renewals of existing tax breaks that were set to expire, so they weren't plucked out of thin air during negotiations over the weekend. However, the fact that they were included in a bill that was the result of such acrimonious debate got the attention of some House members who were against the deal.
Included in the bill:
The fact that the bill raised spending rather than cutting it was a major concern for many House Republicans, prompting even House Majority Leader Eric Cantor to declare his opposition to the deal and ultimately vote against it.
Rep. Darrell Issa, R-Calif., said on the House floor,
"I would like to vote for this, because I do vote for lower taxes, I want Americans to have lower taxes."
He voted against it, however, because of what's lacking from the bill, he said:
"I cannot believe this tax cut will in fact be followed with spending cuts."
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Another major concern for both Republicans and Democrats was the bill's treatment of the so-called "sequester" cuts -- across-the-board spending cuts amounting to $1.2 trillion over 10 years (and about $109 billion this year alone) that were set to hit both the Pentagon and domestic programs starting this week.
The deal passed in Congress allocates $24 billion in spending cuts and new revenues to defer the "sequester" cuts for two months, ensuring Congress will have to debate the issue once again within a matter of weeks.
Adding to the urgency of the next expected fiscal showdown, the deal also failed to raise the debt ceiling (the nation's legal borrowing limit). The Treasury Department is expected to exhaust its borrowing capacity around mid-February, just around the time Congress will have to do something about the sequester.
President Obama and House Speaker John Boehner, R-Ohio, were, in early December, negotiating over a more comprehensive economic package, but leaders sought a more limited deal after those talks fell apart.
The final deal came together after a negotiating session that started Friday with an offer from Senate Republican leader McConnell. McConnell and Vice President Biden worked through Sunday night with White House and congressional staffs to finalize the deal.