The fiscal cliff moved, barely, at about two a.m., New Year's Day, when the Senate voted to approve a plan that would rescind the Bush tax cuts only for families who earn $450,000 a year or more. The plan faces promised opposition in the House.
After fifteen months of stalling and obstruction on any attempt to address the apparent economic disaster the USA was approaching, Minority Leader Republican Senator Mitch McConnell declared on New Year's Eve day, in the last twenty-four hours available to craft a solution, that he was ready to deal, "But," said the good Senator, "I need a dance partner." It seems his official dance partner, Majority Leader Democrat Harry Reid, had quit negotiating, refusing to counter offers by Senator McConnell and insisting his previous offer was the final offer. Enter Vice President Biden, at Senator McConnell's request.
At roughly ten o'clock New Year's Eve, Senate Aides were allowed to tell the press that a deal had been reached, and that the Vice President was carrying it to the White House. By eleven-thirty, no further word was forthcoming, but at about two o'clock in the morning, New Year's Day, the Senate voted for a package that temporarily averted disaster while actually satisfying no one.
As reported by many sources, about the only things of broad effect that were tax issues. The Bush Tax Cuts will remain in effect for all except those families who earn more than $450,000 a year in taxable income ($400,000 for individuals), and capital gains and dividends taxes will rise from 35% to 40%, but at the same income split. Inheritance taxes will also increase, but the existing $5 million deductible will remain, and the infamous annual scramble to avoid having ordinary families pay the Alternative Minimum Tax is no more. It was given a permanent fix. However, the two percent tax holiday on Social Security payroll taxes will be allowed to expire. Long term unemployment benefits are extended for one year. The farm bill, the impending loss of which had led to farm consortiums funding TV ads threatening to charge $8.00 a gallon for milk, was also included in the package.
So, that seems like a lot. What didn't get fixed? How high could that fiscal cliff be? Pretty high, it turns out. The greatest sticking point, once the idea of taxes increasing on the wealthy was handled, was when and how to deal with the eight to ten percent across-the-board cuts to most federal agencies. The President wanted to put them off a year. The Republicans tried to hold up the tax package for a deal now. Ultimately, it was agreed to extend the implementation date for two months. At about the same time, a vote will be due on raising the debt ceiling again. Americans can expect to be treated to a display of brinkmanship equal to the past 48 hours at that time. It's as if Congress were trying to reinforce the idea that individual ideologies as embodied by its members is far more important than its own constituents... and that perception has certainly been emphasized over the past few days.
Until the House of Representatives votes, nothing has really been "fixed." That's important to remember in this day of optimism. The Senate alone cannot send anything to the President for signature. And some members of the House have already indicated they will fight vigorously to defeat this package. They insist the cuts must begin now. They are also angry because the President pointed out that it has been their intransigence on the tax issue that has brought America to the brink of a repeat of the most recent debt ceiling debacle, when they got America's debt rating reduced. That was the event that created the cliff over which America is still poised to dive if they make good on their threat to derail the deal struck by Senate Republicans. If that happens, the Congressional Budget Office foresees a plunge back into recession, with unemployment at nine percent or more by spring.
The good news is that the House is much less likely to defeat this package in the end. They have finally come to understand that Americans blame Republicans far more than Democrats (although Democrats come in for a substantial share of blame) for this debacle, and even for the slowness of the economic recovery from the 2008 crash. Despite aggressive gerrymandering several of the TEApublican Representatives were defeated in the last election, and more are already under threat for the by election of 2014. They can't risk their story being that they voted the country back into recession. Debate and vote is expected New Year's Day, although the vote may occur at some early hour on January 2.