Cliff averted but sequester still looms
The United States has avoided the fiscal cliff, but $110 billion in sequestration is now set to take effect in March thanks to legislation passed in the House and Senate that President Obama has promised to sign.
The House approved the Job Protection and Recession Prevention Act of 2012 (H.R. 8) shortly before midnight on Jan. 1, 2013. Moments later, Obama said he would "sign a law that raises taxes on the wealthiest two percent of Americans while preventing a middle-class tax hike." The Senate approved its measure earlier that morning.
The legislation pushes sequestration back until March, which the Treasury Department says will be when the government must raise the debt ceiling. Treasury Secretary Timothy Geithner reported (.pdf) on Dec. 31, 2012, that the country had officially reached the debt ceiling and projected Treasury could extend its books until Feb. 28, 2013.
Obama said that the legislation will not raise income taxes on 98 percent of Americans or 97 percent of small businesses but will still result in $620 billion in new revenue over 10 years. However, contributions to Social Security will rise from 4.2 percent to 6.2 percent on earnings of up to roughly $110,000, since the legislation does not extend that cut.
The legislation raises income tax rates to 39.6 percent and rates on dividends and capital gains to 23.8 percent for high-income households, defined as individuals making more than $400,000 and couples above $450,000. It also reduces some tax benefits and deductions for individuals making more than $250,000 and families making more than $300,000.
The White House issued a fact sheet on the legislation that says it expands the Child Tax Credit and marriage penalty relief, prevents 2 million people from losing unemployment insurance benefits in January and extends tax cuts for 25 million families and students.
The House voted 257-167, with 172 Democrats and 85 Republicans supporting the measure while 151 Republicans and 16 Democrats voted against it. Republican leadership was split as Majority Leader Eric Cantor (R-Va.) voted against it, while House Speaker John Boehner (R-Ohio) voted for it. The GOP's most recent vice presidential nominee, Rep. Paul Ryan (R-Wis.), an outspoken opponent to tax increases, also voted for the bill.