While most of us were celebrating New Years Eve for 2013, the U.S. Senate passed a bill overnight to prevent the dreaded Fiscal Cliff from happening. With plenty of drama and nonsense, the proposal crafted by Senate Minority Leader Mitch McConnell and Vice President Joe Biden is an ugly one which may not pass in the House of Representatives. But my guess is that enough House Republicans will go along with Speaker John Boehner and together with House Democrats, the bill will pass. In the Senate, the vote, which happened about 2:30am EDT, wound up being 89 to 8 with 5 Republican and 3 Democrat Senators voting NO. The bill postpones the sequestration measure for two months, sparing the military and domestic programs from facing spending cuts, makes the Bush Tax Cuts permanent for those earning under $450,000 per year, and extends unemployment for another full year. Estate and Capital Gains taxes are also increased. All-in-all, the last-minute Fiscal Cliff bill increases revenue by some $620 Billion dollars with only a vague promise of some $15 Billion in spending cuts. Not exactly a ′balanced approach′, is it?
To say that Barack Obama got all he wanted may be over doing it a bit. For starters, his approval ratings have dropped some 5% since his reelection mainly due to the bitter fight on the Fiscal Cliff. And this fight is far from over, even if the House passes the Senate′s bill. As of today, America′s credit card is maxed out, so get ready for another brawl over the debt ceiling. That fight to raise the debt limit will undoubtedly be another knock-down-drag-out battle with Republicans holding the edge this time. While tax rates will go up for top earners, the numbers affected will be fewer than under Obama′s previous proposals.
In case you are curious, the senators who voted NO were Marco Rubio (R-FL), Rand Paul (R-KY), Richard Shelby (R-AL), Mike Lee (R-UT), Charles Grassley (R-IA), Tom Harkin (D-IA), Mike Bennet (D-CO) and Tom Carper (D-DE). Both Rubio and Paul are seen as among potential front runners for the 2016 GOP presidential primaries. We can expect many NO votes in the House, especially from ′Tea Party′ Republicans and those with future ambitions for higher offices. Most eyes will be on how Rep. Paul Ryan (R-WI) votes as he may also be running for president in 2016.
So the Fiscal Cliff apparently has been avoided more or less thanks to the ugly, compromise bill passed by the U.S. Senate overnight. A deal struck between Mitch McConnell and Joe Biden saved the day after Majority Leader Harry Reid gave up his attempt to broker a solution. The bill will make the Bush Tax Cuts permanent for about 98% of taxpayers and extend unemployment benefits for another year. Also, the sequestration of mandatory spending cuts has been postponed for two months. Only those who earn more than $450,000 per year will see an increase in their income taxes. Taxes on dividends and Capital Gains was also increased from 15% to 20% and the Estate Tax was increased from 35% to 40% for inheritances exceeding $5 Million dollars. The House of Representatives is scheduled to meet at noon today and we will see if the bill is passed there. But the fact that while $620 Billion dollars in new revenue is only offset by a mere $15 Billion in spending cuts is not a good sign. Round Two begins shortly when Congress addresses raising the debt ceiling limit.