Senate passes cliff deal
With three hours to spare, the Senate passed a fiscal cliff deal that would raise taxes on the wealthy while punting on the issues of spending cuts for two months.
As far as other elements of the deal, President Obama appears to have gotten about 90% of what he wanted.
The measure, which would raise tax rates for families making more than $450,000 and delay deep across-the-board spending cuts for two months, cleared the Senate by an overwhelming 89-8 vote shortly after 2 a.m. The Republican-controlled House could take up the pact in a rare New Year's Day session, though the timing of that chamber's vote was not clear.
The $620 billion agreement was a major breakthrough in a partisan standoff that has dragged on for months, spooking Wall Street and threatening to hobble the economic recovery. It turned back the GOP's two-decade-long refusal to raise tax rates, delivering a major win for the president.
The bill also canceled pay raises for members of Congress and averted an expected hike in the price of milk by extending expiring dairy policy.
But as big a deal as it was, it did little to address the nation's long-term deficit problem - there's nothing in it to pare back entitlement spending - or to defuse a potential crisis over raising the debt ceiling that could come as early as February.
The Senate was always going to be an easier nut to crack than the House, where there is a proliferation of hard core conservatives with an anti-tax increase agenda. Now we'll see about Speaker Boehner's skills of persuasion:
The legislation now moves to the House, where Speaker John Boehner (R-Ohio) has vowed to give any accord passed by the Senate its time on the House floor. GOP aides said a wide bipartisan vote would ease the bill's passage through the House, but hurdles still remain. It remains to be seen whether House Republicans try to amend the package - a tactic that would surely sink the deal.
"Each of us could spend the rest of the week discussing what a perfect solution would have looked like, but the end result would have been the largest tax increase in American history," Minority Leader Mitch McConnell (R-Ky.) said on the Senate floor before the vote. "The President wanted tax increases, but thanks to this imperfect agreement, 99 percent of my constituents won't be hit by those hikes. So it took an imperfect solution to prevent our constituents from very real financial pain. But in my view, it was worth the effort."
The key to success in the negotiations was when the president sidelined Harry Reid and replaced him with Vice President Biden as chief negotiator. Biden and McConnell have a history of success in ticklish negotiations going back to 2010 and the pairing once again came through - although the final result was unsatisfactory to all sides.
Bottom line: McConnell gave up far more than Obama:
It's not the grand bargain that Wall Street and corporate CEOs wanted to see - and spent millions advocating for. But it is still fairly broad in scope. And it reflects significant concessions by both sides, but particularly for McConnell.
Marginal income tax rates will snap up to 39.6 percent on income above $400,000 for individuals and above $450,000 for families.
And that's it. Obama's "concession" to raise rates on those making $400,000 rather than $250,000 is the only thing McConnell got. On the rest, he caved:
Democrats, in turn, get a yearlong extension of unemployment benefits and business-friendly tax provisions. In a major win for the Obama administration, tax cuts for families first enacted in the 2009 stimulus - an expanded earned income tax credit, child tax credit and college tax credit - would be extended for five years.
The deal would also prevent rate cuts to doctors who treat Medicare patients, sources said. Dividends and capital gains on family income above $450,000 would be taxed at 20 percent, up from the current 15 percent rate.
McConnell even caved on an increase in the estate tax - something that if an up or down vote had been held on maintaining the current rate, would have probably passed easily. Now the rate is set at 40% for those who make more than $400,000 a year with exemptions up to $5 million. In a sop to McConnell, the exemption will be indexed to inflation.
Capital gains and dividend taxes also shoot up - permanently. You have to look very hard to see any compromise at all by Obama and the Democrats in this deal.
Most importantly, McConnell gave in on the overriding principle in these negotiations; that America does not have a revenue problem, but rather a spending problem. By acknowledging the Democrat's view that revenue needs to increase without any corresponding cuts in spending, McConnell has acceded to the notion that deficits are the result of the rich not paying their fair share - a narrative that will now carry forward when the Democrats start to spend that extra revenue without cutting much of anything at all from the budget.
A last note: of the 8 Senators voting against the package, 5 were Republicans - including Rand Paul, and somewhat surprisingly, Marco Rubio. Rubio's vote indicates he is thinking very seriously of running in 2016 and will seek to position himself as the clear conservative alternative to the rest of the field.